Uzbek central bank ups refinancing rate by 5pp to 14%

Uzbek central bank ups refinancing rate by 5pp to 14%
Uzbekistan's central bank ups rates for the first time in two years / bne IntelliNews
By bne IntelliNews June 26, 2017

The Central Bank of Uzbekistan has decided to increase its refinancing rate by as much as 5 percentage points to 14%, changing the rate for the first time since January 2015, the bank said in a statement on June 24.

The central bank’s decision was influenced by “growing inflationary risks” and the need to ensure stable consumer prices, according to the statement. The move shows the regulator's willingness to acknowledge the country’s inflationary troubles, which Uzbekistan has been facing for the last couple of years.

According to official statistics, the inflation rate in 2016 was 5.7% compared to 5.6% in 2015, with a targeted inflation rate projected at 5.7-6.7%. However, independent analysts estimates inflation in the double digits.

A sharp increase in official alcohol prices by 16%-19% at the beginning of 2017 indicated the ongoing double-digit inflation problem. In a similar example, the country saw a 35% hike in government-set fuel prices in October. The move was supposedly aimed at combating “smugglers” who bought cheap Tashkent fuel to re-sell at higher prices in other regions of Uzbekistan.

Such a theory is questionable, however, as the government itself mentioned that smuggled fuel prices reached UZS5,000, when official prices stood between UZS2,000-UZS2,500. The newly set prices of UZS3,000-UZS3,300 hardly seem to reflect the country’s real rate of inflation, which is fueled by the country’s double exchange rate regime.

Uzbek President Shavkat Mirziyoyev previously announced plans to abolish the black market rate of the Uzbek som by switching the national currency to a floating exchange rate regime.

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