Abdulla Abdukadirov: Uzbekistan`s main rate will not go down

On November 26, a press conference was held in Tashkent, attended by representatives of the Ministry of Finance and the Central Bank.

The head of the banking regulator Mamarizo Nurmuratov in his speech tried to explain to journalists the essence of the inflation targeting regime, told about the huge difference between the inflation expectations of the population and the real level of inflation.

The main goal of the Central Bank is to reduce the inflation rate from the current 16.5% to the planned in 2020-2023, which, according to Nurmuratov, will reduce the main rate in 2020. In accordance with the regime of inflation targeting, to which the state aspires, inflation by the end of next year will be 12-13.5%, in 2021 this figure will fall to 10%. It is unclear, how the regulator will make it happen, as the difference is huge.

“If we fulfill the tasks specified in the roadmap [to reduce inflation and ensure price stability for 2020], approved by the presidential decree, I assume that in 6 months the main rate will decrease,” the head of the Central Bank said.

This news spread like lightning in social networks and media, some people even managed to see the light at the end of the tunnel. However, how close is Nurmuratov’s forecast to reality? Abdulla Abdukadirov, a well-known economist, shared his thoughts on this issue.

According to data provided by the State Statistics Committee, the level of GDP deflator in 2018 was 128.1%, and at the end of 9 months of 2019-only 118%.  Why do we write about the deflator when it comes to inflation? The fact is that inflation does not reflect the rise in prices of all goods consumed by people, but only those that the government considers it necessary to include in the consumer basket. At the same time, the GDP deflator, calculated on the basis of the value of all goods and services produced in the economy during the year, reflects the real growth of prices for all goods.

The head of the Central Bank in his speech noted that the inflation rate will decrease, but he did not explain how the regulator indents to implement all this. Given that all the main factors that have caused inflation to rise up to now will not disappear, we can conclude that inflation should will not go down. The forecast of the Ministry of Finance differs from the forecast of the Central Bank. Two main regulators of the country give a different forecast, interesting, isn`t it?

The Central Bank does not have a significant mechanism to reduce the money supply in circulation, and therefore, the targeting parameters still look unrealistic.

In conclusion, Abdulla Abdukadirov noted that taking into account the state of execution of the state budget this year and the planned changes in the field of state borrowing and fiscal policy, the probability of reducing the main rate is very small.

IMF experts also hold a similar view. Earlier this month, experts of the organization published a report: Prospects for the development of the regional economy: the Caucasus and Central Asia. In this report, the specialists of the institution noted with concern the level of inflation in Uzbekistan. The organization’s forecast for Uzbekistan is 14.7% for this year and 14.1% for the next.

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