Tashkent, Uzbekistan (UzDaily.com) - The main directions of monetary policy for 2020 and the period 2021-2022 have been developed in accordance with the Law of the Republic of Uzbekistan “On the Central Bank of the Republic of Uzbekistan” in the new edition and Decree of the President of the Republic of Uzbekistan No. 5877 of 18 November “On improving monetary policy with a phased transition to the inflation targeting regime.”

The current macroeconomic situation, including the current dynamics and inflation forecast, as well as the need to achieve stable and balanced economic growth, determine the importance of the Central Bank taking concrete and more effective measures to ensure price stability.

In this regard, when developing this document, the Central Bank focused on determining the conditions of monetary policy at the new stage of structural reforms with the transition to the phase of the active implementation of the inflation targeting regime with the establishment of:

permanent target (target) on inflation at the level of 5% in 2023;

the goal of reducing inflation to 10% in 2021.

In order to identify priorities for achieving a permanent goal and an intermediate one next year, the development of the main directions is based on maintaining the current dynamics of economic development, the phased implementation of structural reforms in the context of a slight slowdown in global economic growth.

According to the main scenario of economic development, the forecast growth rate of the real volume of gross domestic product (GDP) in 2020 will amount to 5.2-5.5%, and in 2021-2022 they will accelerate to 5.5-5.8%.

It is expected that the growth rate of lending to the economy by commercial banks will be within the growth rate of the nominal volume of GDP, in particular, in 2020, it will be about 20-25% (excluding changes in the exchange rate).

In the fiscal sphere, a certain reduction in the overall fiscal balance deficit is expected, as well as the formation of public debt within the established parameters. It is forecasted that the deficit of the general fiscal balance in 2020 will not exceed 2.7% of GDP, with its gradual decrease to 1.5% in 2022 and keeping it at this level in subsequent years.

In the context of tight monetary policy and a reduction in the fiscal balance deficit, an increase in private and foreign investment will help maintain the set forecast economic growth rates. Based on this, according to preliminary calculations, in the coming years, the negative balance of the current account of the balance of payments will decrease from 7% of GDP in 2020 to 5.9% in 2022. It is expected that covering this deficit, mainly from external sources, in particular, investment resources, will not have a sharp devaluation pressure.

In the main scenario, by the end of 2020 inflation will be in the range of 12-13.5%, in 2021 it will drop to single digits, and in 2023 it will reach the main target of 5%.

According to this scenario, the current trends in foreign economic conditions will remain unchanged without sharp changes in the development of the economies of the main foreign trade partners, as well as with maintaining positive dynamics in the growth of prices for exported goods and cross-border transfers.

On the forecast horizon, in order to achieve a constant inflation target, stringent monetary policy conditions will be maintained with the maintenance of positive real interest rates in the economy.

The main directions describe in detail the main measures taken to achieve the inflation target and bring the monetary policy instruments and mechanisms in line with the inflation targeting standards, in particular:

in the field of development of operational mechanisms:

the main (key) interest rate and interest corridor will be introduced, a set of market instruments that ensure the effective operation of the monetary policy operating mechanism, including credit and deposit auctions, overnight loans and deposits, and if necessary, the Central Bank will issue bonds;

development of a strategy for the development of the domestic foreign exchange market is envisaged, providing for a further increase in the role of commercial banks as market makers in the formation of the exchange rate, improvement of approaches for conducting foreign exchange interventions, as well as the introduction of derivatives (swaps, options and futures);

measures will be taken to reduce segmentation in the credit market by reviewing the practice of soft loans using market principles;

in the field of increasing the forecast and analytical potential:

the system of macroeconomic analysis and forecasting (FPAS) and modern modeling tools are being introduced;

methods will be developed for regular study based on empirical models of inflation factors and inflation expectations of the population and business;

in the field of improving communication policy:

development of modern principles of a communication policy is envisaged, which provides for timely communication to the general public and business representatives of the main inflation factors and monetary policy measures;

The directions of systematic work on the implementation of effective dialogue mechanisms with market participants are identified.

Also, as part of the banking system reform strategy, work will be carried out to transform commercial banks into financial institutions that will help transform the savings of the population and business into investments, and the formation of long-term financial resources in the economy.

To ensure the stability of the banking system and prevent the likelihood of potential risks, it is planned to develop effective macroprudential supervision measures.

In order to reduce non-monetary inflation factors, each of them provides for a deep and comprehensive analysis, followed by the introduction of reasonable proposals to the Government and interested ministries and departments.

In addition, in the coming years, special attention will be paid to strengthening joint actions to effectively coordinate reforms in the field of monetary, fiscal and structural policies.