Tashkent, Uzbekistan (UzDaily.com) -- The base rate of the Central Bank of Uzbekistan was left unchanged at 14% per annum, in order to reduce inflation to 10% by the end of the year amid accelerating economic growth, maintaining factors that increase prices in economy and uncertainty associated with the degree of their impact, as well as achieving a 5% inflation target in the future.

Economic activity and aggregate demand

Since the beginning of the year, there have been positive trends in the dynamics of domestic and foreign demand due to increased economic activity and an improvement in the situation with the pandemic.

In particular, for 9 months of 2021, real GDP growth made up 6.9%. At the same time, compared to the same period of last year, the volume of industrial production increased by 9%, agriculture - by 4.2%, construction - by 4.5% and investments in fixed assets - by 5%. During this period, the income of the population in real terms increased by 10.4%.

At the same time, the recovery of economic activity in some sectors of the economy to the level before the pandemic will take a longer period of time. Domestic and foreign tourism, transport, car production (decreased by 32.4% compared to 9 months of last year) and catering have not yet reached the level of 2019.

Full recovery of economic processes in these sectors in the future will be a supporting factor for high rates of economic growth.

The main factors behind the recovery in consumer demand in the economy during the year were financial incentives, the recovery of economic processes in the private sector and the growth of external economic relations against the background of the stabilization of the macroeconomic situation with the main trading partners. Retail turnover, reflecting the state of consumer demand, for 9 months of 2021 in real terms increased by 9.8%.

In turn, the volume of production of consumer goods in January-September 2021 increased by 10.9%, food products - by 18.3% and non-food products - by 6.9%.

The volume of loans allocated by commercial banks to the economy for 9 months increased by 33% compared to the same period of last year and reached 119.5 trillion soums. At the same time, the number of car loans issued to the population increased 1.6 times, microloans - 1.7 times and microloans - 2.3 times.

This, in turn, served as an important channel for maintaining consumer and investment demand. At the end of the current year, the growth of credit investments is expected to be proportional to the growth of nominal GDP in the range of 16-18%.

External economic conditions

Over the past period of this year, the global economic environment has seen acceleration of inflationary processes against the backdrop of significant increases in prices for basic food and energy resources, as well as tightening monetary conditions in response to most developing countries.

Also, the high rates of recovery in aggregate demand in the world lead to a significant increase in prices on the world energy market.

For 9 months of 2021, the volume of exports (excluding gold exports) increased by 34% over the same period of last year. With the acceleration of economic activity and the full resumption of production processes in key sectors of the economy, the volume of imports in January-September of this year increased by 18.7% over the corresponding period last year and reached the level of the previous pandemic.

In addition, the volume of cross-border remittances to the country for 9 months of 2021 reached US$5.7 billion, an increase of 34.2% compared to the corresponding period of 2020 (US$4.3 billion) and by 29% compared to the corresponding period. the period of 2019 (US$4.5 billion).

The exchange rates of the national currencies of the main trading partners (with the exception of Turkey) have not changed significantly since the beginning of the year, and did not cause a gap in the real effective exchange rate.

Inflation and inflation expectations

At the end of September 2021, annual inflation amounted to 10.8%, which is slightly higher than the forecast in the baseline scenario.

The main driver determining the dynamics of general inflation in the current year was the change in prices for food products and made an increasing contribution to annual inflation in the amount of 6.1 percentage points.

The annual growth rates of prices in the groups of non-food products and services, consisting of components with stable dynamics, in September amounted to 7.7% and 8.8%, respectively, which contributed to a slowdown in overall inflation.

The level of core inflation, which is sensitive to monetary factors, has been forming below the general level of inflation since June and amounted to 9.2%, having decreased by 3 percentage points. since the beginning of the year.

The inflationary expectations of the population for the next 12 months in September fell to 15.8%, and of business entities - to 14.7%. However, they still remain above the general inflation rate, as in many other countries.

This is primarily due to the high growth rates of prices for food products and energy resources. At the end of September, prices for food products increased by 14.4% in annual terms, energy prices - by 23.2%. The rise in prices in these groups of goods is the main factor that has a negative impact on the downward trend in overall inflation.

Monetary conditions

As a result of a number of changes introduced by the Central Bank in the operations of monetary policy and related operational measures, the weighted average interest rates in the money market, after a significant decrease in May-July, in August amounted to 13.0%, and in September - 13.3% , formed within the limits of the interest rate corridor and approached the base rate of the Central Bank.

At the same time, due to the expansion of the interest rate corridor, there was an increase in the activity of banks in the money market. In particular, operations were carried out in the amount of 8.4 trillion soums in August and 7.6 trillion soums in September (an increase compared to July by 46.6% and 31.3%, respectively).

At the end of September, the profitability of deposits on average on household deposits amounted to 20.3%, funds of legal entities 15.3% and is formed at the level of 6-8% of real profitability. Real interest rates calculated on the basis of inflationary expectations of the population also remain positive, at the level of 3-4%.

In turn, this contributed to the growth over the past 9 months of the year in total time deposits in the national currency by 29.5%, including time deposits of individuals in the national currency by 51%.

Due to high economic activity and demand, interest rates on loans increased slightly compared to the beginning of the year. At the same time, the weighted average interest rate on loans to individuals in September amounted to 21.4%, and on loans to legal entities - 21.1%.

Forecast and risks

The transition of headline inflation to a declining trend, formation of core inflation within the forecasts, and the persistence of the current moderately tight monetary conditions will be factors contributing to the achievement of the 10% inflation forecast by the end of the year.

Maintaining the growth of loans allocated to the economy within the growth rates of the nominal gross domestic product in the coming months will not put additional pressure on the prices of the domestic market and the exchange rate of the national currency.

The measures taken by the Government to stabilize the prices of basic food products will minimize the impact of the transfer of price increases on external markets to the level of prices on the internal market.

The Central Bank will continue to study inflationary factors and risks caused by external and internal economic conditions and take appropriate measures to eliminate them.

The next meeting of the Board of the Central Bank to consider the base rate is scheduled for 9 December 2021.