Tashkent, Uzbekistan (UzDaily.com) -- Taking into account that, along with a decrease in annual inflation rates, a number of pro-inflationary risks remain in the global and domestic economy, as well as to ensure monetary conditions corresponding to the achievement of the inflation forecast in 2022, the Central Bank the basic rate unchanged at the level of 14% per annum.

Inflation and inflation expectations

In November 2021, the annual inflation rate was 10.3%. At the same time, taking into account the high base effect, in all groups, except for fuel and transport, the inflation rate slowed down compared to previous months.

At the end of November, the annual growth in prices for food products was at the level of 13.4%, and in the groups of non-food products and services, 7.9% and 8.1%, respectively.

Core inflation, calculated excluding changes in seasonally fluctuating prices for fruits and vegetables, as well as regulated prices (tariffs), decreased to 8.9%. At the same time, the lowest since 2018 was the value of the contribution of core inflation to headline inflation, which amounted to 6.8 percentage points.

According to surveys conducted in November, inflationary expectations of the population and business entities for the next 12 months formed at the level of 16.5% and 15.6%, respectively. The main factors of inflationary expectations, the respondents cite the rise in prices for fuel products and transport services, as well as the impact of uncertainties associated with the pandemic on the production and supply of goods (imports).

Economic activity and aggregate demand

Taking into account the positive dynamics of economic activity and growth of industries in the first 11 months, by the end of the year, economic growth rates of about 6.5-7.2% are expected.

According to the results of a survey conducted in November among enterprises in the real sector, the index of economic activity, showing a slight seasonal downward trend, formed at a positive level, amounting to 53.4 (average annual 52.9).

The implementation of large-scale fiscal stimulus from the second half of 2021 and the current monetary policy environment will be one of the main factors supporting consumer demand and investment activity in the first half of 2022. According to calculations, from the second half of 2022, the rate of economic growth will approach its long-term trend, and the economy will reach its potential level.

As a result of continued lending activity, the volume of loans allocated to the economy in January-November increased by 31% compared to the same period last year, and the level of repayment improved by 14 percentage points to 72%.

External economic conditions

Since the beginning of the year, the external economic situation has been taking shape in the context of accelerating inflationary processes against the backdrop of a significant increase in prices for basic food products and energy resources, as well as a reciprocal tightening of monetary conditions in many developing countries.

At the same time, although initially most central banks argued that inflationary processes associated with food and energy prices are temporary in nature, it is now assumed that inflationary risks may persist for a longer period of time.

During January-November, the exchange rate of the soum fluctuated within the range of 10449-10787 soums per US dollar. At the same time, in November, due to changes in external conditions, the rate of devaluation of the soum exchange rate somewhat accelerated, and since the beginning of the year it has weakened by 3%.

The volume of cross-border remittances entering the country for 11 months increased by 35% compared to the same period last year and reached US$7.3 billion, which is one of the factors supporting the consumer demand of the population.

Monetary conditions

The development of the situation in the interbank money market corresponds to moderately tight monetary conditions. At the same time, the average interest rates in the segment of short-term resources in November amounted to 13%, having formed at a real positive level of 2.4% against inflation.

The weighted average interest rates on time deposits in the national currency in October showed a slight decreasing trend, forming at the level of 19.6% for individuals and 15.1% for legal entities, which ensured real positive rates of 8.1% and 4.1% respectively.

This, in turn, contributed to an increase in the total time deposits in the national currency by 42% in January-November, including household deposits by 63.3%.

There were no significant changes in the dynamics of interest rates on loans. At the same time, the weighted average interest rates on loans to individuals in October remained at the same level of 21.5%, and on loans to legal entities were equal to 21%.

Inflation risks

While the current declining dynamics of inflation raises confidence in reaching the 10% inflation target by the end of the year, the start of fiscal consolidation next year, the persistence of moderately tight monetary conditions and measures to reduce non-monetary factors affecting prices are key factors in achieving 9% inflation forecast for 2022.

At the same time, against the backdrop of global inflation, it is important to continue measures to mitigate the pass-through of growth in prices for basic foodstuffs and imported goods to prices on the domestic market.

A significant increase in prices for fuel and energy products over the past three months has also led to an increase in prices for transport, passenger and logistics services. This, in turn, is acquiring a serious role in raising inflationary expectations of the population. In the future, the tasks of reducing inflationary risks, first of all, will require solving the issues of preventing the rise in prices for these products.

In addition, a systematic solution to the problems of balancing prices for basic food products, reducing the seasonality of this group and increasing the supply of products, is an important factor in ensuring price stability and increasing the purchasing power of the population.

The situation in the domestic foreign exchange market, the dynamics of the real effective exchange rate of the soum and the absence of high pressure on it, together with the Central Bank’s ability to prevent sharp fluctuations in the exchange rate of the national currency, indicates that there are no grounds for high devaluation expectations in the coming months.

The Central Bank will continue to analyze inflationary factors and risks arising under the influence of external and internal economic conditions and take appropriate decisions to eliminate them.

The next pivotal meeting of the Board of the Central Bank to consider the base rate is scheduled for 20 January 2022.