MONETARY POLICY AND FINANCIAL STABILITY: EVIDENCE FROM UZBEKISTAN

Abstract

This study examines the macroeconomic determinants of financial stability in Uzbekistan over 2013–2024. Using the credit-to-GDP ratio as the financial stability proxy, three OLS regression models with HC3 heteroskedasticity-robust standard errors are estimated to assess the associations between inflation, the real interest rate (RIR), broad money supply, and commodity price volatility (oil, gold, copper) and financial intermediation depth. Annual data are drawn from the World Bank WDI, IMF WEO, and the World Bank Pink Sheet.
The principal finding is that the real interest rate is positively and suggestively associated with credit-to-GDP (β = 0.837, p < 0.10 in the baseline specification only), consistent with the simultaneous occurrence of monetary normalisation and financial deepening following Uzbekistan’s 2017 liberalisation reforms. This association loses significance once additional controls are added and should be treated as indicative. Inflation and commodity price volatility are individually insignificant across specifications, though a complementary specification using bank assets as the dependent variable confirms a large and significant inflation association (β = 3.441, p < 0.01). A CUSUM structural stability test identifies a parameter break attributable to the 2017 reform programme. The findings support a policy stance that balances continued monetary prudence with targeted macroprudential measures and structural economic diversification.