Tashkent, Uzbekistan (UzDaily.com) - The Board of the Central Bank did not change the basic rate of the Central Bank and it remained at 15% per annum.

This decision is due to the expectation of the formation of a more stable bearish inflation forecast trend and maintaining a balance between the goals of ensuring macroeconomic stability and maintaining business activity in the context of economic recovery.

The Central Bank is considering the possibility of a further reduction in the level of the basic rate at the next meetings based on a decrease in the forecast inflation rate and will continue to take all necessary measures together with the Government to achieve a constant inflation target of 5 percent by 2023.

Under the influence of the pandemic effect in April of this year inflation was 1.7%, which was due to the adaptation of market prices to a sharp increase in demand for basic food products, medicines and personal care products.

In May, the general price level stabilized relatively as a result of saturating the markets with a new crop of vegetables, easing restrictive measures related to counteracting the spread of COVID-19 and gradually recovering economic activity. In May of this year prices rose 0.3%, and annual inflation was 14%, which does not exceed the interim inflation target.

It should be noted that in a pandemic, the population mainly made purchases of food and medicine, while at the same time refraining from purchasing non-food items. These changes were reflected in the consumer price index.

In turn, these factors had a certain impact on the level of perceived inflation and inflationary expectations of the population and business.

With relative stabilization of consumer prices in May, inflationary expectations fell slightly, but still remain at a fairly high level.

In April of this year, there was a significant decrease in business activity, primarily due to restrictive measures and the deterioration of the situation on world markets. A partial suspension of production and a decrease in household incomes led to a decrease in aggregate demand in the economy.

In particular, the total number of transactions through the interbank payment system has been significantly reduced. The decrease in this indicator compared to the same period of last year in April made up 39.8%, and in May 34.7%. The maximum decline occurred in April, despite the fact that in May a gradual recovery began to be observed, when transaction volumes grew by 7.6% compared to the previous month.

At the same time, the volume of payments through the terminals of trade and paid services in May increased by 25% compared to April of this year and made up 5.2 trillion soums.

In May, cash receipts to commercial banks from the sale of goods and services also began to recover. So, if in April the banks received 3.4 trillion soums, then in May this indicator grew by 44% and made up 4.9 trillion soums.

A similar situation was observed at the bidding of the Uzbek Republican Commodity and Raw Materials Exchange. In April of this year trading volume decreased by 9.4% compared to the previous month, and in May increased by 39.7%.

In addition, the influx of cross-border transfers is recovering, which should positively affect the consumer mood of the population. So in May, compared with April, the volume of transfers grew by US$234 million and made up US$484 million.

In the sphere of industrial production by the end of May, recovery in output volumes by 27 percentage points is expected in comparison with April of this year

Also, according to preliminary data for the first half of the year, growth in construction is expected to exceed 4% and in agriculture within 3% compared to the same period of last year.

In general, in May, with the lifting of restrictive measures, the situation improved somewhat and there is a tendency towards a gradual restoration of business activity in the economy.

During the last 5 months of 2020, the Central Bank also maintained moderately tight monetary conditions. Despite the reduction in April of the basic rate by 1 percentage point. Since the beginning of the year, positive real interest rates have been maintained in the deposit and credit market.

According to the results of April of the current year, the average weighted interest rates on loans decreased by 0.7 percentage points. compared with March, they made up 24.1%, while the weighted average interest rates on term deposits over one year increased by 0.5 percentage points and made up 19.3%.

The decrease in the average weighted loan interest rates is due to a decrease in the share of consumer loans with high interest rates in the total loan portfolio and this trend is expected to continue in the coming months.

The growth of credit investments in the economy, not taking into account changes in the exchange rate, accelerated in May compared with April (from 2.2% to 2.8%) and for 5 months made up 14.4% or 30.0 trillion soums.

As of 1 June 2020, the total money supply made up 99.2 trillion soums, with its significant growth in the last 2 months (by 8.7 trillion soums or 9.7%). At the same time, in May, the growth rate of term deposits accelerated after their slowdown in April, amounting to 12.3% per annum.

As a result of the impact of the pandemic on the factors of liquidity formation, the demand from commercial banks for deposit operations is reduced, and the demand for repo and swap auctions is growing. In particular, in February-May 2020, the volume of medium-term deposit operations of the Central Bank made up 425 billion soums, and on average, 673 billion soums of liquidity were provided for repo and swap transactions. At the same time, the net difference between operations averaged 248 billion soums per day, which became one of the factors supporting the liquidity of banks.

In May of this year the interbank money market intensified, and the total volume of operations made up 4.4 trillion soums, which is 2.0 trillion soums (85%) more than in April.

At the same time, interest rates on deposits for up to 14 days were formed within the interest corridor of the Central Bank with some fluctuations, and interest rates on term deposits up to 30 days or more were relatively high, due to increased demand for long-term resources.

The exchange rate of the national currency under the influence of external and internal factors in April of this year depreciated by 5.8%, and in May formed at a relatively stable level.

Despite the gradual weakening of quarantine measures, there is still uncertainty about the prospects for inflationary processes in the economy associated with the action of bilateral factors - on the one hand, bearish factors due to weaker aggregate demand, and on the other hand - raise ones amid limited supply.

In addition, the main risks are a longer recovery of the economies of the main trading partners, as well as the timing and degree of adaptation of the business to new economic realities.

At the same time, to ensure food security and price stability of basic food products, it will be necessary to take measures to replenish the corresponding food reserves and increase its supply.

By the end of the first half of the year, the effects of the April adjustment of the exchange rate to external conditions and a pandemic on the price level and the preservation of the current level of annual inflation (14-14.5%) are expected to be gradually exhausted.

The Central Bank keeps the inflation forecast for the end of the year unchanged at 11-12.5%, while a significant decrease in annual inflation is expected in the second half of the year. The main factors of these expectations are the balancing of aggregate supply with demand against the background of a gradual revival of activity, as well as the invariability of regulated prices.

Keeping the trend of annual inflation slowdown in June and July below intermediate points will create conditions for lowering the main rate in the second half of the year.

At the same time, the Central Bank will continue an in-depth study of the nature of the factors and risks of inflation under the influence of external and internal conditions and will make appropriate decisions at the basic rate based on the dynamics of the inflation forecast.

The main meeting of the Central Bank Board to review the basic rate is scheduled for 23 July 2020.