BAKU, Azerbaijan, Nov. 26
By Fakhri Vakilov-Trend:
Uzbekistan can achieve a permanent inflation target by 5 percent by 2023, stated Deputy Director of International Monetary Fund’s (IMF) Middle East and Central Asia Department Juha Kahkonen during a recent speech at Uzbekistan’s Central Bank, Trend reports citing Uzbek media.
In 2020, the Central Bank will begin to switch to inflation targeting. The permanent inflation target by 2023 is set at 5 percent.
First Deputy Chairman of the Central Bank Ilkhom Norkulov said that achieving this indicator will be a difficult task: “Targeting inflation should be a task for everyone - both for the Central Bank and for ministries. Every ministry and department will have to pay attention to inflation. ”
Kakhkonen said that this is a feasible task: “Of course, it is possible to achieve this figure by 2023, but this requires a number of measures. It’s impossible to aim at reaching it next year. The current price liberalization is not yet complete, and in this regard there will be additional pressure on inflation. ”
“Reforms should continue to change the structure of the economy. The liberalization of prices for energy and other raw materials will probably be completed soon. I think that this target is quite feasible,” said the IMF representative.
In Kakhkonen’s opinion, the transition to inflation targeting will not be ideal from the very beginning. “For this, it is necessary to take many steps and go through stages; this is the political independence of the Central Bank, which should not feel the pressure from fiscal policy. I think the new edition of the Law on the Central Bank will help in this regard,” he said.
Kahkonen also pointed out that the banking sector should also work more efficiently.
“At present, the Central Bank cannot control the pace of lending, given that lending is carried out through Uzbekistan’s Fund for Reconstruction and Development,” said the IMF representative.
Inflation targeting is a set of monetary measures that government agencies take to control inflation in a country. For this purpose, a medium-term macroeconomic forecast must be established, and if the deviation from the forecast is set, a set of measures is needed that will return to the optimal situation in the economy.
The main tool of inflation targeting is the interest rate, which allows to give signals to the economy about the money supply. If the rate rises, interest on loans also rises. In this situation, the population usually postpones consumption, which leads to lower demand and higher inflation, as well as a slowdown in economic growth. If the rate decreases, the money supply rises, and the volume of production rises.
According to the main scenario of the Central Bank, by the end of 2020 inflation will be in the range of 12–13.5 percent, in 2021 it will drop to a single digit, and it should reach a target of 5 percent in 2023.
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