Uzbekistan’s central bank on May 4 opted to leave its benchmark interest rate unchanged at 14% per annum. (chart)

"This decision is aimed at ensuring monetary conditions in the economy that contribute to a further slowdown in price growth, as well as the continuation of the positive effect of the March reduction in the main rate to maintain balanced growth in aggregate supply and demand," it said.

The 14% rate was set in March with a 100 bp cut that marked the first change in the key rate in eight months. After Russia invaded Ukraine in February last year, the rate was hiked as high as 17%.

The regulator noted that annual inflation in March and April continued to slow. In those months, it was recorded at 11.7% and 11.0%, respectively.

"Seasonal factors and the effect of the high base of the previous year played an important role in this decline," the central bank said.

Core inflation, reflecting long-term and stable inflationary factors, also showed a significant downward trend in March, slowing to 12.9% in annual terms (it was 13.8% in December 2022). At the same time, the contribution of core inflation to overall inflation was less than 10 pp for the first time since last October.

Inflation expectations of the population and business entities for the next 12 months have, meanwhile, returned to a downward trend, forming at 14.4% and 14.1%, respectively. Also, the median estimate of inflation expectations of the population decreased to 11.5% and, for business entities, to 11.4%.

The tightening of global financial conditions has started to manifest in increased volatility in the global and regional financial markets.

"Despite the relatively rapid application of measures to respond to emerging risks in the international banking system, it is predicted that the rigidity of credit conditions and uncertainty about future risks will remain until the end of the year," the central bank added.

According to the central bank’s updated forecasts of global economic growth, a slowdown is expected in 2H23. Global inflation would continue to decline more slowly than previously expected, the central bank reported.

The forecast range for the inflation rate at the end of the year remained at the level of 8.5−9.5%. "The dynamics of inflation expectations, moderately tight monetary conditions in the money market and the stabilisation of the situation with the supply of basic goods increase confidence in the formation of inflation in the middle of this forecast corridor," the regulator concluded.

The central bank will next review its monetary policy on June 15.