Why is this important
High rates complicate access to financing for businesses and the population, affecting the investment climate. If the factors that shape rates are not reduced, economic growth may slow down.
What happened
- Inflation and inflation expectations are the main factors, according to Ishmetov; there will be no rate reduction without price stability.
- A significant share of concessional/directive loans (within the framework of state programs) prevents the market from freely forming rates.
- High returns on deposits: banks compete with each other, especially those that issue microloans, to attract client funds.
- Microloans are a risky product, they are issued with high interest rates. When banks are focused on them, they are forced to attract deposits at high rates — other banks react similarly.
- The Central Bank is not planning to administratively force credit rates to decrease — this should happen through market mechanisms, through reducing inflation and increasing the reliability of money.
Context
In Uzbekistan, directive or concessional lending previously constituted a large share of the loan portfolio; according to some estimates, about 30% of bank loans were concessional by the end of 2024. The Central Bank’s monetary policy is aimed at reducing inflation to 6-7% in 2025 according to the baseline scenario. High deposits and competitive struggle for public funds exacerbate the situation with expensive loans.
