Tashkent, Uzbekistan (UzDaily.com) —  At the meeting on 31 October 2024, the Board of the Central Bank conceptually approved the “Monetary Policy Guidelines for the period of 2025 and 2026-2027”

Monetary Policy Guidelines for 2025-2027 represent the visions of the Central Bank on the medium-term macroeconomic development and define monetary policy measures aimed at achieving the price stability objectives during this period.

The Central Bank developed Monetary Policy Guidelines based on the baseline and alternative scenarios of macroeconomic development taking into account medium-term perspectives of external and internal economic conditions, as well as possible impacts of uncertainties and risks on inflation.

Moreover, the risky scenario was designed based on the constantly existing inflationary risks.

The baseline scenario is based on the assumptions that internal and external conditions will continue developing at the current pace, global inflation will decline, economic growth in the world will remain stable, commodity prices in global markets will persist relatively high, domestic investment demand will increase, and structural reforms will be actively implemented.

Under this scenario, real GDP is projected to grow at around 5.5-6.0% in 2025 influenced by relatively tight monetary conditions and fiscal consolidation, 5.5-6.5% in 2026, and 6.0-6.5% in 2027.

In 2025, owing to relatively tight monetary conditions, consumer demand is expected to moderate, and inflation is projected to decline to 6.0-7.0%.

In addition, given the expected increase in regulated prices next year and the low base effects of food inflation in 2024, there are grounds on inflation reaching the 5% target in the second half of 2026.

Extension of the target period implies a gradual reduction of inflation with no adverse impact on overall macroeconomic stability based on current conditions and inflationary factors.

Meanwhile, coordinated measures of monetary policy and macroprudential policy aimed at reducing monetary factors of inflation and ensuring a steady downward trajectory of core inflation will be strengthened.

The alternative scenario was developed with the assumptions that domestic conditions will remain stable, however, there will be some negative consequences from increasing external risks including the persistence of high global inflation, a substantial decrease in economic activity of some major economies, and intensifying fragmentation of the world economy.

In this case, there are anticipations that the adverse effects of external risks on economic growth will be significant, and fiscal incentives will offset the losses caused by weaker external demand and support domestic demand. As a result, economic growth is projected to amount to 5.0-5.5 percent in 2025, 5.0-6.0 percent in 2026, with some recovery to 5.5-6.5 percent in 2027.

Under the alternative scenario, amid a certain slowdown in economic activity and continued relatively tight monetary conditions, headline inflation is expected to amount to 7-8% in 2025, declining to 6% in 2026 and approaching the 5% target in the first half of 2027.

Under this scenario, monetary conditions will be tighter compared to the baseline scenario, including the possibility of increasing the policy rate.

The risky scenario assumes emergence of supply-side inflationary risks caused by adverse impact of climate change on output in the region, stronger fiscal incentives amid constrained production, and mismatch between demand and supply of energy resources. Under these risks, headline inflation is expected to be around 8-9 percent in 2025, 7-8 percent in 2026, approaching the 5 percent target at the end of 2027.

Under this scenario, the Central Bank will increase the policy rate and tighten monetary conditions in order to mitigate inflationary pressures. Also, together with the government, measures to reduce the effects of non-monetary factors on inflation will be strengthened.

Under any scenario, monetary policy measures will be aimed at ensuring price stability, particularly, achieving and maintaining the inflation target of 5%, the main mandate of the Central Bank.

Meanwhile, in order to increase the effectiveness of monetary policy measures in the coming years:

operational framework and interbank money markets will be further improved in order to ensure effective transmission of monetary policy decisions;

the range of short-term forecasting tools will be expanded, while the parameters of medium-term forecasting models will be reassessed and adjusted to the current economic reality;

coordinated monetary and macroprudential policy measures will be further actively implemented to balance lending activity;

the Central Bank will continue implementing transparent monetary policy communication, expanding communication channels and increasing the scope of statistical data.

The conceptually approved preliminary draft of " Monetary Policy Guidelines for the period of 2025 and 2026-2027" will be published on the official pages of the Central Bank and will be open for public discussion.