Tashkent, Uzbekistan (UzDaily.com) -- The Central Bank of Uzbekistan kept the refinancing rate at 14% per annum on 28 July 2018. The bank’s board made the appropriate decision.

The Central Bank noted that the decision is aimed at strengthening the trend of lower consumer price growth rates and maintaining the comparative attractiveness of deposits in the national currency amid persisting potential risks of increasing inflationary pressures during the period of structural changes.

Inflation

In January-June 2018, the increase in the consumer price index (CPI) compared to December 2017 was 6.2% (7.2% in January-June of 2017). The monthly dynamics of the CPI for the first half of 2018 indicates a gradual slowdown in price growth from 2.7% in January to -0.4% in June.

In comparison with the same period of the previous year, there have been significant changes in the structure of inflation. In the first half of 2017, food prices made the biggest contribution to inflation, and in the first half of this year their growth slowed by half to 4.6%, while the growth in tariffs of services doubled to 8%. Accordingly, in January-June of 2018, non-food prices and tariffs for services became the "drivers" of inflation.

Despite the overall downward trend in price growth, the economy continues to have relatively high inflationary pressures, which are due to higher regulated prices and a noticeable rise in price of some basic food products.

Inflationary expectations of the population and business entities in the short term have tended to decline, while long-term expectations, on the contrary, remain relatively high.

Money-credit policy

Interest rates of the money market in the second quarter of 2018 fluctuated within 12.7-13.1%, reflecting the change in the availability of liquidity in the banking system.

The use of a new order of mandatory reserve allowed to prevent the growth of liquidity in the banking system associated with an increase in the external assets of the Central Bank.

It should be noted that the Ministry of Finance’s approach to balanced execution of the budget, to a certain extent, helped to contain the growth rates of liquidity and the money supply.

Real interest rates on loans were formed at a positive level, the volume of credit investments in the economy grew at an accelerated pace, which is mainly due to the expansion of the scale of soft loan programs.

In the first half of 2018, the balances of credit investments increased by 21.5%.

As a result, in the second quarter of 2018 there was an acceleration in the growth rates of the money supply compared to the previous quarter, and in the first half of the year the money supply increased by 5.8%.

The interest rate policy to maintain the attractiveness of deposits in national currency contributed to the  higher growth in the volume of savings and term deposits in the structure of liabilities of banks, which increased by 40 and 27%, respectively, from the beginning of the year.

The exchange rate of the national currency strengthened by 3.1%, which is connected with increase in the supply of foreign currency in the second quarter of 2018.

Economic and investment activity

Economic growth in the countries - major trading partners and favorable conditions for the key export items of the country provided balanced conditions in the external sector.

In the first half of 2018, sustained economic growth was observed, based on accelerated growth in the sphere of services and industrial production.

According to preliminary estimates of the State Statistics Committee, in January-June of 2018 the volume of gross domestic product increased by 4.9%.

The growth of the number of operating enterprises and organizations, which for January-June of 2018 increased by 7.3% or 20,700 units, was also characterized by high rates.

During the period under review, the volume of capital investments increased by 13.4%. The active expansion of the volume and scale of construction works continued (an increase of 9.7%).

High activity in the economy, the possible expansion of state programs for development of entrepreneurship in the second half of 2018, individual sectors and regions can give an additional impetus to accelerating the growth rates of the economy.

In the short term, a certain increase in inflationary pressures may be associated with an increase in investment and consumer demand in the economy due to expansion of lending in the framework of targeted programs and adjustment of salaries, as well as the process of liberalization of regulated prices.

Taking into account that the economy maintains a relatively high level of inflation expectations in the second half of the year, the Board of the Central Bank decided to continue the current monetary policy and keep the refinancing rate at 14% per annum.

The Central Bank will continue to monitor the actual and expected changes in monetary conditions under the influence of various factors and, accordingly, to respond to the emerging inflationary risks.

The next meeting of the Board of the Central Bank to review the refinancing rate is scheduled for the second half of October 2018.