Central Bank of Uzbekistan holds key interest rate at 14% per annum

Uzbekistan's Central Bank has decided to keep its key interest rate steady at 14% per annum, a decision made at its July 29 meeting. The bank cited a slowdown in disinflation and continued price pressures as key factors influencing this decision. Supply-side issues and external economic conditions, combined with strong domestic demand, are contributing to elevated price levels.

In June, annual inflation accelerated to 6.4%. This rise was primarily attributed to increases in regulated energy tariffs and the liberalization of coal prices. Core inflation, which excludes volatile food and energy prices, stood at 5.7% and has shown little change in recent months. The Central Bank cautioned that the impact of higher regulated prices could lead to more persistent inflation in the latter half of the year. Evidence of this pressure includes a growing share of goods and services experiencing price increases above 5% and a halt in the decline of core inflation.

Despite inflationary concerns, inflation expectations have eased, falling to 10.1% among individuals and 9.9% among businesses in June. The Central Bank has maintained its year-end inflation forecast for 2026 at 6.5%, believing current monetary policy settings will help guide inflation toward its 5% target and anchor expectations.

Economically, Uzbekistan is showing strong performance. Real GDP expanded by a significant 8.5% in the first half of the year, fueled by robust growth in retail trade and services reflecting strong consumer demand. Investment trends also indicate continued high investment activity. The Central Bank anticipates sustained investment inflows, including foreign direct investment, along with increased fiscal spending in the second half of the year, to support economic activity. The projected economic growth for the full year remains strong, estimated between 7.5% and 8%.

However, external risks loom. Rising geopolitical tensions could push global food and commodity prices higher. Fuel supply disruptions and increased logistics costs in trading partner countries may also inflate domestic prices through higher import costs. Furthermore, a pause in global disinflation and tighter monetary policies in other nations could prolong restrictive external financial conditions, creating uncertainty over external financing. The bank noted that current monetary conditions remain tight, with positive real interest rates encouraging savings and moderating credit growth, deeming the policy sufficiently restrictive to manage inflationary pressures.