Sun 10 2020 09:14:09

Tashkent, Uzbekistan ( -- At a meeting of the Board of the Central Bank, held on 22 October 2020, the "Main directions of monetary policy for 2021 and the period 2022-2023" were approved.

The main directions of monetary policy reflect a set of measures that will be implemented by the Central Bank in the coming years, including measures that will be taken in the monetary sphere in the context of changes in external and internal macroeconomic conditions, as well as the applied principles and instruments.

When developing the main directions, first of all, emphasis was placed on the fulfillment of the tasks defined by the Law of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan" to ensure price stability and the Decree of the President of the Republic of Uzbekistan "On improving monetary policy with a gradual transition to the inflation targeting regime" to bring monetary policy in line with the standards of the inflation targeting regime, achieving inflation targets below 10% in 2021 and 5% in 2023.

The Main Directions reflected the measures taken in 2020 by the Central Bank in the framework of the assigned tasks and their expected results, as well as the priority directions of the Central Bank’s actions in different scenarios of macroeconomic development.

2020 was a very difficult year for our country and the world economy. The crisis, which began under the influence of the global pandemic, is characterized by a simultaneous deterioration in both internal and external economic conditions and fluctuations in supply and demand.

The global economy and the main foreign trade partners of our country are experiencing economic recession trends against the background of a sharp slowdown in economic activity, falling commodity prices and instability in financial markets.

The ongoing pandemic and the measures taken to combat it create various fluctuations and affect the economy, which complicates the process of assessing and forecasting macroeconomic indicators.

Taking into account the degree of these uncertainties and the peculiarities of the channels of influence, forecasts of macroeconomic development were developed on the basis of 3 different scenarios - the main one (providing for a gradual economic recovery), optimistic (faster recovery) and risky (slower recovery).

In this regard, when developing scenarios for macroeconomic development, first of all, the impact of the coronavirus pandemic on the economy of the country and the economy of foreign trade partners, prices for major export goods, as well as changes in the potential level of production were taken into account.

The main scenario of macroeconomic development contains those assumptions under which the situation with the pandemic will gradually improve. The population and business will continue their activities, adapting to the conditions of the pandemic and after it. At the same time, due to the gradual recovery of the economies of foreign trade partners, external demand from the second half of 2022 will reach the pre-crisis level.

According to calculations under this scenario, economic activity and aggregate demand in the country will approach pre-crisis levels by the end of 2021, and by 2023 the economy will return to its potential level. Budget revenues will be restored. The consolidated budget deficit is projected to decrease to 2.5% of GDP in 2022. At the same time, structural reforms will continue and the process of liberalization of regulated prices will be carried out in 2022-2023.

Under the baseline scenario, the current “relatively tight” monetary policy environment will remain in place until the end of 2021.

At the same time, in 2022-2023, based on changes in regulated prices, the level and forecast trajectory of inflation, the conditions of monetary policy may be adjusted depending on the situation.

An alternative (optimistic) scenario of macroeconomic development, based on a rapid economic recovery, includes a more rapid improvement in the situation with the pandemic, the absence of further quarantine measures and the widespread use of antiviral vaccines and drugs from the second half of 2021 in the world.

Due to the gradual recovery of the economies of the main trading partners, external demand is expected to reach pre-crisis levels in the second half of 2021, and the price of gold will decline as the global economy recovers.

Under this scenario, domestic economic activity and aggregate demand are expected to approach pre-crisis levels by mid-2021, and by 2022 the economy will reach its potential. At the same time, unlike the main scenario, it is envisaged to revive the growth rates in the transport, services and tourism sectors.

Along with the recovery of economic activity, state budget revenues will grow relatively faster, and the consolidated budget deficit will be reduced to 2% in 2022. At the same time, the logical completion of the process of liberalization of regulated prices in 2022-2023 and the attraction of foreign direct investment are one of the key factors of economic growth.

In the optimistic scenario, the current “relatively tight” monetary policy conditions will be maintained. At the same time, the inflation rate in 2021-2022 will form slightly lower than in the baseline scenario. This, in turn, will allow the inflation target to be achieved without significant changes in the monetary policy environment.

Under an alternative (risky) scenario of macroeconomic development, based on an increase in external economic risks, the probability is laid that the global situation with the pandemic will worsen and global restrictions will continue in 2021-2022.

It is predicted that the economy of foreign trade partners will recover slowly, external demand will reach the pre-crisis level only in the second quarter of 2023, and the dynamics of growth in gold prices, as a safe asset, will continue.

Under the risk scenario, domestic economic activity and aggregate demand are projected to reach pre-crisis levels only by the end of 2022, the economy will reach its potential level after 2023, and the consolidated budget deficit will remain at 6-7%.

In this scenario, the liberalization of regulated prices is likely to be postponed until 2023.

In this scenario, the pressure on inflation from the side of demand factors will decrease, and the deviation of inflation from the forecast trajectory will allow to “soften” monetary conditions a little. At the same time, as in 2020, monetary policy instruments will be used to strike a balance between the goals of maintaining economic activity and achieving price stability.

It should be noted that within each scenario, based on development trends and expected changes, monetary conditions for 2021-2023 will be determined. and a set of monetary instruments appropriate to the scenarios. At the same time, the characteristics of each scenario are assessed in terms of the nature and formation of inflation factors, and, accordingly, a system of response measures is developed.

It should be noted that in all three scenarios, the Central Bank’s inflation target of 5% by the end of 2023 and the permanent goals to ensure the stability of the banking and payment systems will remain unchanged.

In order to improve the operating mechanism, it is planned to introduce fine-tuning operations from 2 to 13 days in order to increase the flexibility of liquidity management in the banking system.

In addition, it is planned to ensure effective redistribution of liquidity in the interbank money market and gradually reduce the role of the Central Bank.

In the future, it is planned to increase the volume of the Central Bank’s bond issue with a shorter maturity. At the same time, mechanisms will be developed to increase the transparency of bond issues, publish their schedules at the beginning of each quarter and preliminary determine the volume of issues based on the liquidity situation in the banking system.

At the same time, further improvement of the domestic foreign exchange market will increase the flexibility of the exchange rate to internal and external factors, as well as the role of market participants in determining the exchange rate.

In addition, information on inflation targets, the nature of monetary decisions and the work undertaken to develop the operating framework will be regularly released to the general public as the new communications policy is implemented.

It should be noted that ensuring macroeconomic stability and achieving high rates of economic growth in the medium term largely depends on structural reforms, as well as on attracting domestic and foreign private investment in the economy.

This, in turn, is closely related to the efficiency and practical significance of measures aimed at reforming state-owned enterprises, developing a competitive environment in the economy, creating favorable institutional conditions for doing business and increasing aggregate productivity.

At the same time, the Central Bank will focus on the task of ensuring the coordination of structural reforms and macroeconomic policy measures with inflation targets, as well as maintaining financial stability.


+998 71 2815040

14 Bobur street, Yakkasaroy tumani Tashkent, Uzbekistan

* - Required fields