Tashkent, Uzbekistan (UzDaily.com) - The Central Bank kept its core inflation forecast for 2020 at 12-13.5%. This decision is due to the need to build stronger confidence in the declining forecast inflation trend, as well as the persistence of some uncertainties regarding the level of adjustment of regulated prices.

At the same time, there is a possibility of revising the main rate in the direction of a slight decrease at the next meetings.

Dynamics and forecast of inflation. At the end of 2019, inflation formed near the upper boundary of the forecast corridor (13.5-15.5%) and amounted to 15.2%.

The main acceleration occurred in the second half of the year as a result of liberalization of regulated prices (an increase of 21.6%), as well as a more rapid devaluation of the national currency in August 2019.

During 2019, the most notable growth was observed in prices for flour and bakery products (24.8%), meat products (23.4%), fruits and vegetables (14.5%), as well as in the field of passenger transport (13%).

In October - December 2019, quarterly inflation slowed to 5% compared to 5.7% in the same period of 2018.

The Central Bank maintains a basic inflation forecast for 2020, which is set at 12-13.5%. The prerequisites for lowering inflation by the end of the year are based on the following forecast estimates:

- exhaustion of the effects of some inflationary impulses that arose in 2019 and a forecast for a slower rise in prices of food and non-food products, given that prices for many of these products have already adjusted to an average level in the Central Asian region, as well as in other countries - the main ones trading partners;

- the projected growth in agricultural production, textile and construction industries will contribute to an increase in supply in the domestic consumer market. An important factor in this will be the gradual improvement of the competitive environment;

- ensuring moderate credit growth through proper monetary and macroprudential policies, as well as optimizing government spending and the general fiscal deficit will prevent excessive growth in demand in the economy, thereby reducing pressure on inflation and the exchange rate.

The predicted moderate increase in the nominal level of household income in 2020, including the average level of wages after their significant adjustment in 2018-2019, will also contribute to a decrease in the influence of demand factors.

External and internal economic conditions. According to preliminary estimates, GDP growth in 2019 amounted to 5.5-5.6%.

In general, despite the slowdown in global economic growth, the conditions for economic growth over the past year remained favorable, largely due to stimulating fiscal and credit policies, as well as the positive dynamics of prices for major export commodities.

At the same time, according to forecast calculations, the faster growth rates of credit investments and government spending in 2018-2019 will, to some extent, continue to exert their positive impact on the economy in the first half of 2020.

It is assumed that, in the second half of 2020, the growth rate of nominal GDP will slightly decrease compared to the corresponding period of 2019. Despite the deterrent effect of fiscal and monetary policies on aggregate demand, an increase in foreign direct investment and the intensification of investment processes will have a supporting effect on economic growth.

Monetary conditions. In the last quarter of 2019, money market rates were formed under the influence of various factors and market trends. The nature of their changes was significantly different from previous quarters of the year.

In particular, the average weighted rates on deposits increased from 15.2% in October to 16.4% in November and 17.5% in December 2019. At the same time, an increase in the average term of deposit operations was observed.

In October-December 2019, the volume of interbank operations increased more than 2 times relative to their average values in the previous quarters.

At the same time, despite the absence of a steady increase in inflation expectations and forecasted inflation dynamics, interest rates on deposit operations in the money market for a period of 1 to 3 months increased to 18-20%. This may be due to a lack of liquid resources for longer periods and the desire of banks to bring bank liquidity sufficiency indicators into line.

The gradual release and saturation of the domestic financial market with bonds of the Central Bank and the Ministry of Finance along with measures by banks to improve their liquidity should contribute to the formation of a yield curve corresponding to the forecasted inflation path.

It is expected that measures to desegmentation of the market through a gradual transition to market mechanisms for the allocation of loans will also serve to narrow the gap between interest rates on the credit market.

The total money supply in 2019 increased by 13.8%, and in the national currency - 14.4%. At the same time, positive trends were observed in the money supply structure, in particular:

- time deposits in national currency increased by 43%, including individuals - by 54%;

- the proportion of household deposits in deposits increased from 25% to 31%;

- cash in circulation increased at a relatively slow pace - by 9.4%. The development of the infrastructure of payment systems and financial technologies, as well as the gradual strengthening of confidence in the national currency and, in general, the banking system, began to have a positive impact. As a result, in 2019, the share of cash in the total money supply decreased from 27.6% to 26.6%.

According to adjusted indicators, credit investments in the economy in 2019 increased by 54.7%. In particular, loans in the national currency increased by 48.7% (including to the population - by 63.5%), there is also a growth in lending in foreign currency - by 62.6%.

According to forecast estimates, the growth rate of credit investments will return to a fundamental trend or balanced growth, corresponding to the growth rate of nominal GDP, and will be in the range of 20-25%.

Providing a projected level of growth in credit investments in 2020 with the redirection of newly allocated loans due to repayment previously issued to more efficient projects will generally have a positive impact on the economy and will serve as a factor in lowering price growth and improving the balance of payments, preventing excessive demand.

In the field of macroprudential policy, efforts will focus on ensuring strict compliance with the established requirements for liquidity, capital adequacy and the maximum debt burden of the population.

Monetary policy measures will be aimed at improving the channels of its impact, including through credit growth, savings activity, inflationary expectations and exchange rate stability.

It is planned to carry out interest operations and use communication tools in a more practical format.

Risks and uncertainties. Uncertainty remains in the service sector, the cost of which is largely determined by the level of wages, and utility prices are highly dependent on energy prices.

Uncertainty remains regarding the increase in regulated prices. The growing need to resolve the problems associated with the uninterrupted supply of electricity and gas for the economy may require a substantial price adjustment in 2020. This, in turn, leads to a revision of the basic forecast. But this factor is considered as one-time and will be taken into account when considering the level of the basic rate at the next meetings.

A key factor in the steady slowdown in inflation is the implementation of an appropriate structural policy in the field of developing transport infrastructure, competition in the markets, and ensuring an uninterrupted supply of gas and electricity in the economy.

At the same time, the Central Bank will continue to carefully study the nature of the factors and risks of inflation, and as it builds more firm confidence in the forecast dynamics of inflation, it will take appropriate decisions to reduce the level of the basic rate.