The Central Bank of Uzbekistan, in its meeting on April 25, 2024, decided to keep the main interest rate at an annual level of 14%. This decision aligns with the Executive Board's assessment of monetary conditions relative to the upper bound of the updated inflation forecast corridor. The Board noted that the impact of key monetary factors on inflationary pressures is decreasing.
Inflation dynamics and forecasts
The Bank reported a decline in headline inflation, which stood at 8% y/y as of March, influenced partly by lower food prices. Despite this, the services sector has seen rising inflation due to demand strength and recent hikes in regulated prices. Core inflation, which excludes volatile items such as food and energy, decelerated to 7.6% in March, indicating a trend below the headline inflation rate.
Revised projections for headline inflation in 2024 are now estimated to be between 9% and 11%, considering recent adjustments in regulated prices and the VAT imposition on certain goods starting in April.
Economic growth and labour market trends
Preliminary data suggest that economic growth accelerated to 6.2% in 1Q24, with notable expansion in services, retail, and construction sectors, alongside increased investment in manufacturing and mining. The labour market shows heightened demand, particularly in high-skilled sectors, leading to higher wage growth in these areas.
The real exchange rate of the national currency depreciated by 0.9% since the year's start, with forecasts indicating stability in the near term.
Outlook and monetary policy adjustments
The Central Bank anticipates GDP growth to range from 5.2% to 5.7% by year-end. This forecast is adjusted based on expected moderation in consumer demand due to structural shifts in population and business spending.
In terms of monetary operations, the Bank foresees a transition from a structural surplus to a deficit in banking system liquidity, which will be managed through ongoing monetary operations. The tight monetary conditions have led to moderated credit growth and boosted deposit growth, thereby supporting real positive interest rates.
The Bank remains committed to balancing supply and demand dynamics, managing inflation expectations, and advancing structural reforms under a moderately tight monetary policy framework. The next policy rate review is scheduled for June 13, 2024, where further adjustments will be considered based on emerging economic indicators.
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