Microsoft Word econ 2004 16. doc

Table 1. Interest & inflation rates 
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 
Refinancing 
rate 
% 
84 
60 
48 
48 
42.6 
42.6 
24 
30 
30 
Treasury 
bill 
rate 
% 
3 monthly 
36 
26 
16.6 
6 monthly
1
 
27.5 
20.4 
15.0* 
Deposit 
rate 
% 7 10 30 60 90 28 14.8 
13.1 
13.5 
21.9 
21.8 
Lending rate 
%
100 
105 49.7 
28 33.1 
32.7 25.8 26.2
Inflation 
rate 
% 
Consumer prices 
169 910 885 1281 116.9 64.3 50 26.1 26 28.2 26.4 22 18.4 
Producer prices 
311 1300 1919 1422 217.4 75.4 40.3 48.4 34.5 88.8 90.8 41.1
*Annualised average for Nov. 98
1
Source: International Monetary Fund (IMF) (2000), EBRD (2003b)
 
In 1992 the Central bank of Uzbekistan (CBU) started to use reserve requirements 
for the commercial banks as an instrument of monetary policy to regulate the 
money supply. Reserve requirements have been applied to the national currency 
bank deposits only. However, although the Central Bank has a legal right to pay 

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interest on the reserve deposits, it has chosen not to do so. This was negatively 
reflected in profitability of banks.
At present, CBU continues to use the reserve requirement instrument. However, 
the initial rate of 30% for the loans with maturity up to 3 years has been cut 
steadily to 20% for local currency deposits. The liquidity impact of the measure 
was neutralised with the auctioning of Treasury bills yielding interest 1.5-2 
percentage points higher than the rates ordinarily paid in Treasury bill auctions. 
This step resulted in an improvement in the income position of banks, since 
required reserves are not remunerated. 
Open market operations were never really used by the Central Bank of Uzbekistan 
since magnitude of securities issued by the Central Bank was very small and 
access to these securities was restricted. Even when issued, the Central Bank 
securities earned negative interest rates in real terms that made them less than 
attractive to the limited number of players. 
In common with other economies with the negative real interest rates and 
low confidence in banks (which in Uzbekistan was induced by the freezing of 
bank deposits during currency conversion in 1993-1994), Uzbekistan has been 
experiencing significant problems attracting deposits from the public. Individuals 

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preferred to hold cash for short-term transactions and foreign currencies (primary 
US dollar) as long-term investments (see
Figure 1). This explains high-level cash-to-broad money ratio (see Table 2).
0
25
50
75
100
125
1995
1996
1997
1998
1999
2000
2001
2002