Uzbekistan Holds Interest Rates
Uzbekistan Holds Policy Rate at 14% as Inflation Cools to 6.2%
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Key Points
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Uzbekistan’s economy grew 8.5% in the first half of 2026, with particularly strong activity in retail trade, services and investment, even as the central bank maintained a highly restrictive real interest-rate position.
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Inflation has fallen sharply from roughly 10% at the start of 2025 to 6.2% in August, while the Uzbek soum’s appreciation in real effective terms has provided additional disinflationary support.
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Despite lower expectations, inflation remains broad-based: the central bank said a sizeable share of goods and services is still recording price growth above the 5% target.
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Households’ inflation expectations stood at 10.1% in June and businesses’ at 9.9%, significantly above the then-current 6.2% inflation rate, underscoring the central bank’s concern about credibility and expectations.
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Although domestic demand remains strong, some components of aggregate demand have begun to stabilize and credit growth has gradually moderated, suggesting early signs that tight monetary conditions are affecting activity.
Uzbekistan's central bank held its policy rate steady at 14% on September 16, pausing its tightening cycle as inflation cooled but stayed stubbornly above target. Annual inflation fell to 6.2% in August, down sharply from roughly 10% a year earlier, yet Caspian Post reported the central bank remains concerned about persistent price pressures and unanchored inflation expectations among households and businesses.
The hold extends the bank's restrictive stance despite Uzbekistan's robust 8.5% economic growth in the first half of 2026. Policymakers cited elevated global food and energy costs, strong domestic demand, and the risk of second-round inflation effects as reasons to keep rates unchanged. The next policy decision is scheduled for October 28.
Inflation Retreats but Stays Above the 5% Goal
Uzbekistan's inflation has fallen dramatically. It dropped from roughly 10% in early 2025 to 6.2% in August, while core inflation eased to 5.5%. Yet both figures remain above the central bank's 5% target, which officials aim to reach by the end of 2027. The gap reveals policymakers' caution about declaring victory.
Price increases remain broad-based across the economy. Caspian Post noted that a sizeable share of goods and services continues recording growth above the 5% target. This persistence explains why the central bank chose not to cut rates, even as headline inflation fell.
Households Expect Much Faster Price Increases Ahead
The central bank's biggest worry may not be current inflation but future expectations. In June, households believed prices would rise 10.1% annually, while businesses expected 9.9% growth. These forecasts far exceeded the actual 6.2% inflation rate then in place. Unanchored expectations can become self-fulfilling if workers demand higher wages or firms raise prices preemptively.
To keep expectations grounded, the central bank is maintaining its restrictive real interest-rate position. High real rates — the nominal rate minus inflation — reward savers and discourage excessive borrowing. This strategy aims to rebuild credibility after years of elevated inflation.
Strong Growth Persists Despite Tight Money
The Uzbek economy is expanding rapidly. Real GDP grew 8.5% in the first half of 2026, driven by robust retail trade, services, and investment. This strength occurred even as the central bank kept real interest rates highly restrictive, a sign that growth drivers remain powerful.
However, some cracks are appearing. Credit growth has gradually moderated, and certain components of aggregate demand have begun to stabilize. These shifts suggest tight monetary conditions are finally dampening activity, though the economy remains hot.
The Soum's Strength Adds Extra Disinflationary Help
The Uzbek soum currency has appreciated in real effective terms, meaning it has gained value against a basket of trading partners' currencies adjusted for inflation. This makes imports cheaper and dampens price pressures on imported goods. The currency strength has provided additional disinflationary support alongside the central bank's rate hold.
Combined with falling global commodity prices and the central bank's restrictive stance, currency strength explains why inflation fell so quickly. But officials remain wary of global food and energy cost spikes, which could reverse gains at any moment.
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