Central Bank allows increased fluctuations in the Uzbek som to form realistic expectations

Tashkent, Uzbekistan (UzDaily.com) — The Central Bank of Uzbekistan has intentionally allowed greater fluctuations in the national currency’s exchange rate to foster more realistic expectations among market participants, Central Bank Chairman Timur Ishmetov stated at a press conference on 11 September.

According to the regulator, for many years the som’s exchange rate remained within a relatively narrow range, which led banks and businesses to develop stable, patterned expectations regarding its movement. “Market participants had certain expectations: that the rate would rise by a specific percentage each year, or even if it decreased slightly, it would inevitably rise afterward,” Ishmetov explained.

Since April of this year, the Central Bank has widened the range of currency fluctuations nearly fourfold. While the average daily change in the rate was 12.2 soums from January to April, after 18 April it increased to 47.5 soums. “We now believe that increasing the degree of fluctuation will help form more realistic expectations about the exchange rate and may influence the level of dollarization,” the Central Bank chairman added.

The International Monetary Fund has supported the move toward greater exchange rate flexibility, noting that it provides reliable protection against external shocks, preserves international reserves, encourages companies to hedge currency risks, improves the transmission of monetary policy signals, and helps avoid entrenched expectations of devaluation.

Ishmetov emphasized that a more flexible rate reflects actual market conditions based on supply and demand, whereas a managed rate can distort these signals, complicating business planning and investment risk assessment. A flexible exchange rate can also mitigate the impact of external factors, such as declining exports, rising global prices, or geopolitical risks, reducing pressure on foreign currency reserves and the need for emergency government intervention.

The regulator will continue to limit currency interventions, adhering to the principle of neutrality: foreign currency sales will only occur in amounts equivalent to purchases from local gold producers, minimizing the impact of these operations on liquidity.