Central Bank comments on increase in the refinancing rate

On March 17, the Board of the Central Bank of the Republic of Uzbekistan decided to increase the base rate to 17% per annum.

“Against the background of high uncertainties and tensions in the external economic environment, the Central Bank raised the refinancing rate to 17% per annum to ensure macroeconomic and financial stability in the country by preventing the growth of devaluation and inflation expectations, maintaining savings in the national currency and mitigating the impact of external risks on our economy,” the CB said in a statement.

It was noted that the economic situation in the major trading partner countries, sharp fluctuations in their exchange rates, rising prices in world commodity and energy markets increase macroeconomic uncertainties and risks. Also, the results of surveys conducted among the population and businesses showed a significant increase in devaluation expectations. At present, these factors have a negative impact on domestic macroeconomic stability in the short and medium term through various channels.

At the same time, short-term effects are reflected in the reduction of supply in the domestic foreign exchange market due to reduced export earnings and remittances to Uzbekistan, changes in domestic prices through rising prices for imported consumer goods, while medium-term effects put pressure on economic growth due to reduced external and domestic demand.

According to the Central Bank, the soum has depreciated by 6.8% against the US dollar since the beginning of this year.

“Given the current situation, the Central Bank increased the volume of interventions in the domestic foreign exchange market in the first half of March this year in accordance with the “principles of neutrality” in order to prevent sharp fluctuations in the exchange rate and ensure the stable operation of the market. These interventions are being carried out at the expense of additional reserves created last year as a result of favorable conditions in the foreign exchange market. In order to ensure stability in the market in the future, appropriate interventions will be carried out and measures will be taken to prevent sharp fluctuations in the national currency. Today’s increase in the refinancing rate is also aimed at mitigating the short-term negative effects (shocks) that are occurring,” the CB concluded.