Experts and economists who participated in the Tashkent Monetary Policy Dialogue warned that early and hasty cuts by global central banks risks keeping inflation above official price stability targets.

Participants in the dialogue, which included representatives of the International Monetary Fund, central banks and academia, stressed that fiscal policymakers are currently facing a more complex phase after years of high inflation and successive economic shocks, arguing that the haste to ease monetary policy could threaten the credibility of these banks, which have already been damaged by the miscalculation of the post-pandemic inflation trajectory.

Supply Shock Lessons

Professor Athanasius Orvanides, a professor at the Massachusetts Institute of Technology (MIT) and former governor of the Central Bank of Cyprus, explained that the Covid experience has proven the cost of not adjusting monetary policies properly, leading to waves of inflation that have exceeded all tariffs of price stability.

The IMF's Resident Representative in Uzbekistan, Koba Gvinitadze, noted that repeated shocks over the past five years have changed traditional perceptions, as central banks have proven that supply chain disruptions and supply factors cannot be treated as mere temporary phenomena, as their profound effects may appear at later stages and continue to push prices higher.

The Uzbek model

On the other hand, the Uzbek experience during the dialogue emerged as one of the successful frameworks in implementing the "inflation targeting" system to ensure macrostability, as figures from the Central Bank of Uzbekistan revealed that structural reforms have succeeded in reducing the overall inflation rate to a record low from levels of nearly twenty percent in 2018 to five and a half percent by May 2026.

The operational drop coincided with a decline in inflation expectations for businesses and households to an average of around 10 percent, reflecting the growing conviction of the street and the private sector in the country's ability to keep the pace of price increases under full control.

Decline in dollarization

In terms of boosting confidence in the local currency, the Central Bank of Uzbekistan announced a sharp decline in the levels of "dollarization" within the banking system as a direct proof of the success of the hawkish policies, as the share of foreign currency deposits decreased to record only about 20% of the total bank deposits compared to about 50% in previous times, while the percentage of dollar lending fell to 37% from 54%.

The Director of the Monetary Policy Department of the Central Bank of Uzbekistan, Samigdon Inugamov, stressed that policymakers are committed to maintaining tight monetary conditions and deepening domestic financial markets to achieve the ultimate inflation targets and consolidate the credibility of fiscal policy.