Why a rate cut in Uzbekistan now appears more distant
The Central Bank of Uzbekistan's recent decision to maintain the policy rate at 14.00%, coupled with the removal of rate cut guidance, signals a more hawkish stance driven by rising inflationary pressures. Per the full note from ing-think, the central bank cites cost-push factors and robust domestic demand as primary reasons for this shift. Additionally, the removal of language indicating potential easing reflects a growing concern over heightened external risks, such as increasing commodity prices, that may keep inflation expectations elevated. Overall, this underscores the central bank's commitment to maintaining tighter monetary conditions in the near term, despite potential long-term rate cuts being on the table.
What the desk is arguing
The desk interprets the CBRU's decision as a clear signal that any hopes for a near-term rate cut have faded, indicating a commitment to higher interest rates to combat inflationary trends. Per the full note, inflation has risen from 5.5% year-on-year in May to 6.4% in June, reinforcing the central bank's cautious outlook.
The commentary also emphasizes the central bank's focus on cost-push inflation, driven by external factors, which has raised concerns about prolonged high inflation rates, pushing the bank to prioritize stabilizing the FX market by keeping real rates high. This strategic pivot suggests a longer-than-expected horizon for monetary easing.
Where it sits in our coverage
While we currently do not have internal coverage data on this specific jurisdiction, it is pertinent to monitor developments in Uzbekistan's monetary policy closely, particularly given the heightened stance against inflation.
How other firms see it
Monitoring consensus views in the market, some firms are aligned in their expectation of prolonged high rates, while others may take a more dovish stance on future developments. In particular, firms like jpmorgan may align with the current tightening narrative, while bofa could present a contrary view on potential easing.
These differing views highlight the complexities of the economic landscape in Uzbekistan, especially concerning the USD/UZS dynamics and regional inflation trends that could impact the broader FX market landscape.
Key takeaways
- 01CBRU maintains the policy rate at 14.00%, indicating a hawkish shift.
- 02Inflationary pressures have risen, prompting caution in monetary easing.
- 03The removal of cut guidance suggests a longer path for potential rate cuts.
- 04Ongoing external commodity pressures present risks to economic stability.
Market implications
Watch the USD/UZS exchange rate as the central bank's decision to maintain a high policy rate will likely support the currency in the short term. A focus on inflation metrics will be crucial in forecasting future monetary policy shifts, and traders should prepare for possible volatility.
Risks to this view
Should inflation begin to decline significantly or if external commodity prices stabilize, the CBRU might reconsider its current stance, potentially opening the door for earlier than expected rate cuts. Additionally, a drastic change in global economic conditions could also shift the outlook, affecting both inflation and currency dynamics.
Older quick take Quick take Published 12:41 Uzbekistan Why a rate cut in Uzbekistan now appears more distant The Central Bank of Uzbekistan kept the policy rate at 14.00% and removed a cut option from its near-term guidance, citing higher cost-push factors and stronger domestic demand. We see the extended pause in gold exports as an additional argument in favour of keeping real rates high to reinforce the FX market. Yet room for cuts still exists in the longer term The Central Bank of Uzbekistan's latest commentary aims to slash expectations of cuts in the near term Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Dmitry Dolgin Chief Economist, CIS 14.00 CBRU policy rate, % Unchanged As expected Rate on hold, signal less dovish The decision by the Central Bank of Uzbekistan (CBRU) to hold was not a surprise.
We had expected the policy rate to stay at 14.00%, as the CPI rebound in June supported the CBRU’s earlier scepticism about the quality of the disinflation trend. The surprise was in the tone of the commentary . In June, the CBRU still sounded cautious , but it explicitly said that a sustained decline in inflation expectations, limited second-round effects from tariff adjustments and an improvement in the core inflation outlook would create conditions for gradual easing.
This conditional easing language was completely removed from the July statement, so the current hold no longer looks like a delay before a cut. The central bank is now focusing more on pro-inflationary trends, including the CPI recovery from 5.5% year-on-year in May to 6.4% in June, core inflation no longer improving at 5.7%, and a higher share of items in the consumer basket showing above-target growth. In terms of expectations, the official CPI forecast for the year-end of 2026 remained unchanged at 6.5% YoY, but the list of upward risks has become more pronounced.
The CBRU highlighted the growing external risks from higher commodity prices and fuel supply disruptions, as well as domestically driven second-round effects of higher regulated prices threatening to become visible in underlying inflation in the second half of the year. The domestic demand angle also matters, as the CBRU now sees 2026 GDP growth at 7.5-8.0%, up from the previous 7.0-7.5% range. Based on the first-half data, we estimate that 2Q26 growth remained very strong at around 8.4% YoY after 8.7% in 1Q26.
CBRU holds rate as CPI drop in June proves temporary Source: National sources, CEIC, ING "> Source: National sources, CEIC, ING High real rates to reinforce FX market The FX market consideration may add another reason for the CBRU to stay cautious for now. Uzbekistan’s gold exports appear to have paused again in May-June after a brief restart in April, leading to continued weakness in the trade balance. That means the recent resilience of the soum is increasingly dependent on foreign portfolio inflows.
While we doubt Uzbekistan is implicitly targeting the exchange rate, a stronger soum would be helpful in limiting imported inflation risks and support the CPI's eventual move towards the long-term target of 5%. At the same time, the longer the pause in gold exports lasts, the more likely it becomes that sales restart later, especially once global gold prices find support. A restart would be positive for the soum and could strengthen the case for eventual easing.
For now, however, the pause in gold sales makes the central bank more likely to keep real rates elevated. Gold sales are back on hold since May Source: National sources, CEIC, ING "> Source: National sources, CEIC, ING Our view: First cut postponed until year-end The wording of the CBRU commentary aims to slash expectations of cuts in the near term. The central bank seems happy to maintain one of the highest real rates in the region, compelling domestic households to prioritise savings and supporting the competitiveness of UZS-denominated assets in global financial markets.
This approach appears to be justified by the country's twin deficits and other structural pro-inflationary risks. We therefore no longer expect a cut in September. But our longer-term view remains unchanged: if fiscal consolidation continues, core inflation starts to soften, and gold exports restart, the CBRU should still have room to begin a cautious easing cycle later this year while still keeping monetary policy tight in real terms.
Uzbekistan Real rates Policy Rate Inflation Exchange rate CIS sovereigns Central banks Budget Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Older quick take
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