Uzbekistan's central bank holds policy rate at 14% and reworks FX rate-setting

The Central Bank of Uzbekistan kept its policy rate at 14 per cent per annum at the Board meeting on 16 September, saying that persistent upside risks to inflation justify holding tight monetary conditions even as price growth slows, according to its press release. Headline inflation was 6.2 per cent in August and core inflation 5.5 per cent. The next Board meeting is scheduled for 28 October.

The bank noted that the share of goods and services with annual price increases above 5 per cent has risen, which it said points to persistent price pressures. Inflation expectations of households and businesses continued to fall, but more slowly than headline inflation, "reflecting the continued influence of inflationary inertia on price-setting processes", the release said.

The assessment of demand was mixed. Retail trade, services and investment indicate strong consumer and investment demand, while signs of stabilisation have appeared in some components, and credit growth is moving towards more moderate levels under tight conditions. Positive real interest rates are supporting household saving, according to the bank. High global commodity, food and energy prices are feeding into domestic inflation through import prices, transport and logistics costs. The bank said an appreciation of the soum's real effective exchange rate this year is easing that pressure, while the continuing liberalisation of regulated prices may add to secondary effects. It aims to bring inflation to its 5 per cent target by the end of 2027.

The second-quarter review

Six days later the bank published its Monetary Policy Review for the second quarter. The economy expanded 8.5 per cent in the first half of 2026 and the 2026 growth forecast was raised to a range of 7.5 per cent to 8 per cent. Annual inflation was 6.4 per cent in June, 0.9 percentage points below the level at the start of the year but above May's 5.5 per cent, with changes in electricity, gas, coal and fuel prices the main factors. Core inflation was around 5.7 per cent.

The review put household inflation expectations at 10.1 per cent and business expectations at 9.9 per cent in June, both almost 4 percentage points above headline inflation, the bank said. Local-currency deposits grew 46.1 per cent year on year while growth in outstanding loans slowed to 12.9 per cent. The real effective exchange rate fell 0.9 per cent in the second quarter. The updated forecast has inflation at about 6.5 per cent at the end of 2026 and back at 5 per cent in 2027.

Changes to foreign exchange practice

The bank also changed how it sets the exchange rate. From 15 September the official rates are calculated from the weighted average of transactions on the currency exchange and on the interbank over-the-counter market, rather than from exchange transactions alone, according to the central bank. On weekends and official holidays the rate announced on the last business day is used.

On 11 September the bank said it had developed a strategy for foreign exchange operations and interventions for 2026 to 2030 under the inflation-targeting regime. Its stated aims are to improve market-based exchange rate determination, increase the role of banks in the foreign exchange market and align the bank's operations with international practice.

External accounts and market infrastructure

The balance of payments review for the first half of 2026 shows the external position in transition. Total exports were $15.4 billion, down 8.6 per cent because of lower gold exports, while non-gold exports rose 27 per cent and services exports 45 per cent, according to the central bank. Imports rose 24 per cent to $28.8 billion, leaving a trade deficit of $13.4 billion and a current account deficit of about $6.2 billion. Net foreign direct investment inflows were $2.3 billion and net portfolio investment inflows about $2 billion. The stock of international reserves fell by $2.5 billion because of lower global gold prices.

The central bank is also working on reserve management and market plumbing. It signed a two-year memorandum with BlackRock on 18 September to explore cooperation on reserve management, which the bank said creates no investment mandate or financial commitment. On 28 September it met representatives of the Central Securities Depository to discuss priorities including strengthening the secondary market and improving market access for foreign investors.

The bank will hold a press conference after the 28 October meeting and announce its next Monetary Policy Review, according to its meeting schedule.