Tashkent, Uzbekistan (UzDaily.com) -- The Central Bank of Uzbekistan kept the refinancing rate unchanged at 16% per annum on 20 April. The Board of the Central Bank of Uzbekistan took the decision.

This decision is based on the need to maintain the current conditions of monetary policy aimed at curbing inflationary processes and consolidating the declining trend of inflation expectations, the regulator said.

According to the Central Bank, in the first quarter of 2019, the annual inflation rate was near the lower boundary of the Central Bank’s baseline forecast corridor (13.5–15.5%) and was 13.6%. The trend of annual inflation, in contrast to the first quarter of 2018, showed a slight upward trend.

In general, during the first quarter of 2019, the inflation rate was lower than expected and was influenced by seasonal factors from the supply of certain types of food products, as well as the continued effect of regulated price increases in November 2018, maintaining a high level of lending, expanding the tax base of VAT and a slight weakening of the national currency.

The change in business taxation and the increase in energy tariffs in November 2018 did not fully affect prices and this process is likely to continue for some time, the regulator said.

The main driver of inflation, as in previous years, was the rise in prices for food products, whose contribution to quarterly inflation was 2.8 percentage points. At the same time, the contribution of non-food products significantly decreased to 1 percentage point, and the contribution of services was 0.5 percentage points.

Inflationary expectations of business and population, after rising in January, had a smoothly decreasing trend. At the same time, medium-term expectations remain higher than short-term, which, in turn, indicates that concerns remain among respondents about the rise in prices in the medium term.

The economy maintained a saving mood and the time deposits of the population and legal entities increased rapidly. In the first quarter of 2019, the volume of term deposits of individuals increased by 19.2%, legal entities by 13.2%.

In the first quarter of 2019, the volume of loan balances in the economy grew by 9% (in the corresponding period of last year - 9.3%). At the same time, the growth rate of credit investments in the national currency compared to the first quarter of 2018 (16.7%) slowed down almost 2 times - to 8.6%.

As a result of the increased activity of commercial banks in attracting resources of international financial institutions, as well as the processes of technical renewal and investments aimed at increasing the export potential of the country, there was an increase in the balance of loans in foreign currency by 8.7% (in the corresponding period of the previous year, this indicator was 4.5). The share of loans in foreign currency in the loan portfolio amounted to 54.5%.

The growth in the debt burden economy in foreign currency necessitates the adoption of further macro-prudential policy measures in order to eliminate the possible negative impact of external shocks on financial stability.

Moreover, it is important that the current imports of technology and equipment be transformed into expanding and strengthening the production base and export potential in the medium and long term.

The Central Bank conducted interventions in the domestic foreign exchange market within target volumes, the successful placement of government securities in the domestic market, and the Central Bank deposit auctions made it possible to sterilize excess liquidity in the banking system and contributed to maintaining positive real interest rates in the economy.

Interest rates of the interbank money market during the first quarter of 2019 were formed at a relatively unchanged level of 14.6-14.7%.

The central bank retained the baseline inflation forecast for 2019 at the level of 13.5–15.5%.

In the II and III quarters of 2019, the average monthly inflation rate will be within the limits of last year’s values, that is, a significant decrease in annual inflation rates from the current level is not expected.

At the same time, based on the current situation and a high base in the fourth quarter of the previous year, the Central Bank expects a decrease in the level of annual inflation in the fourth quarter. At the end of the year, inflation will approach the lower boundary of the forecast corridor, depending on the degree of realization of the following risks:

- the continuing secondary effect of the November (2018) price increase for energy resources, together with the second stage of price increase in June of the current year;

- changes in the basic economic conditions for entrepreneurship (for example, restricting access by certain categories of producers to certain types of energy resources);

- indexation of tariffs of services, including utilities;

- increasing investment demand, in particular for building materials.

Subject to confirmation of firm confidence in reducing the level of inflation, the Central Bank allows for a revision of the inflation forecast downward in the first half of 2019.

The next meeting of the Board of the Central Bank to review the refinancing rate is scheduled for July 20, 2019.