Central Bank of Uzbekistan allows for targeted adjustments to UZS exchange rate; market sets long-term - strategy

TASHKENT. Sept 11 (Interfax) - The Central Bank of Uzbekistan has prepared a strategy for operations and interventions in the domestic forex market through 2030, outlining the Bank's activities under an inflation-targeting regime.

The regulator has posted the document on its website.

"The strategy's primary goal is to further refine the formation of the national currency's exchange rate based on market mechanisms, enhance the role of banks in the forex market, and align the Central Bank's operations and interventions in the domestic market with international best practices," the Central Bank said.

The Central Bank identifies several objectives for its operations in the domestic forex market; including executing actual forex transactions; ensuring an optimal level of liquidity within international reserves; maintaining the market's orderly and uninterrupted functioning, including mitigating the effect of large or unexpected supply and demand factors; and assuaging sharp exchange rate fluctuations.

At the same time, the regulator's operations must not aim to alter the long-term fundamental trend of the exchange rate. The strategy notes that this trend should align with macroeconomic conditions and the Central Bank's inflation targets. Neither the exchange rate itself nor its rate of change should be set as a target for monetary policy.

The Central Bank indicates that the volume and frequency of forex operations and interventions should decrease as the financial market develops, dollarization levels decline, capital flows are liberalized, and the effect of exchange rate fluctuations on inflation diminishes, provided an optimal level of liquid international reserves is maintained.

The Central Bank has set specific rules to conduct the forex operations, namely planning to conduct operations without affecting the direction of the exchange rate by adhering to a specific frequency and a pre-announced schedule.

"Forex interventions aimed at mitigating sharp fluctuations in the national currency's exchange rate are conducted in a manner that does not affect the exchange rate trend determined by market principles," according to the document.

The Central Bank may conduct forex operations on the domestic market either on the currency exchange or on over-the-counter forex market.