Key facts
- Central banks risk keeping inflation above target by lowering interest rates too quickly.
- Economists discussed these challenges at the Monetary Policy Dialogue in Tashkent.
- Athanasios Orphanides, former governor of the Central Bank of Cyprus, noted post-pandemic policy miscalculations.
- Uzbekistan has seen inflation fall from nearly 20% in 2018 to 5.5% in May 2026.
- Dollarisation in Uzbekistan's banking system has significantly decreased.
Central banks are facing a critical test of their credibility as they consider lowering interest rates amid persistent inflation and economic uncertainty, economists warned at the first Monetary Policy Dialogue in Tashkent. Premature rate cuts could lead to inflation remaining above target, according to experts.
Athanasios Orphanides, a professor at MIT and former governor of the Central Bank of Cyprus, highlighted that many central banks struggled to calibrate policy correctly in the post-pandemic period, resulting in inflation significantly exceeding their price stability goals. He expressed concern that policy easing is being contemplated too early by many institutions.
The challenge for central banks extends beyond the timing of rate cuts; it involves maintaining credibility amidst unpredictable shocks to prices, supply chains, and demand. Koba Gvenetadze, the IMF's resident representative in Uzbekistan, emphasized the importance of learning from the repeated shocks of the past five years, noting that supply disruptions can impact inflation with a lag, as seen during the COVID-19 pandemic.
Orphanides suggested that inflation targeting remains an effective framework for guiding monetary policy in uncertain economic conditions. Uzbekistan's experience was cited as an example, with the central bank moving towards full-fledged inflation targeting as part of broader market reforms. Figures presented showed inflation falling from nearly 20% in 2018 to 5.5% in May 2026, with inflation expectations also declining from an average of 20% to about 10%.
Lower dollarisation was also presented as a sign of growing confidence in Uzbekistan's macroeconomic stability. Foreign-currency deposits now constitute around 20% of total banking deposits, down from nearly 50%, and dollarised lending has fallen to 37% from 54%. Samigjon Inogamov, director of the Central Bank of Uzbekistan’s Monetary Policy Department, indicated that the central bank would maintain tight monetary conditions to achieve its inflation target and bolster policy credibility.