WOOD Flash – Uzbekistan macro: CBU keeps rates unchanged, reiterating conservative stance for 2023E

At its December meeting, the Central Bank of Uzbekistan (CBU) kept the policy rate unchanged, at 15%. Uzbekistan is the only country in our active coverage to have eased the monetary conditions slightly compared to 1H22, when the rates were hiked to 17.0%, to stabilise the market following the Russian invasion of Ukraine. After then cutting 200bps in June and July, the CBU has kept the rates stable at 15% since. The inflation outlook remains well within the central bank’s expectations target of 12.0-14.0% for this year, although reaching the official target of 5% for the end of 2023E still seems very optimistic, in our view. In 2023E, we expect some limited easing, bringing the policy rate to 13.5%, for a cumulative 150bps of cuts. Sticky core inflation, geopolitical risks, and external supply side inflation factors on food inflation and energy remain the main risks for this forecast. As Uzbekistan keeps its plans to borrow from the international market up to 1 USD bn – about 1.5% of the 2021 GDP – in 2023E, a tighter macro stance could also help to reassure international lenders, amid global recession risks and the consequent further tightening of global financial conditions.