The Central Asia and Caucasus (CAC) region is demonstrating an internally driven resilience to global volatility and the tight monetary policy of global central banks, but faces risks of exhausting its geopolitical dividends, Report informs referring to the largest Dutch banking group, ING Group.
According to ING's baseline forecast, the region enters 2027 having successfully coped with the consequences of high global inflation and tight policy rates. Strong national currencies, positive real interest rates, as well as supportive inflows of commodity and external revenues are curbing imported inflation, allowing the domestic environment to determine monetary policy.
"Uzbekistan and Kazakhstan are expected to retain room for cautious rate easing. Azerbaijan will most likely hold a pause, while Armenia will remain the 'hawkish' stronghold of the region," the statement says.
Experts emphasize that global monetary tightening does not automatically lead to a synchronous rate hike in the CAC. Nevertheless, the region's resilience is based on fundamental pillars that require protection.
"Regulators in Kazakhstan and Uzbekistan need to maintain attractive real rates to support demand for local assets and protect exchange rates. Nominal rates may decline, but central banks cannot afford to sacrifice the safety cushion of real rates that guarantees the stability of the foreign exchange market," ING analysts note.
ING analysts consider the potential fading of the "geopolitical dividend" as a key risk. Previously, the CAC benefited from the fragmentation of global trade, attracting redirected flows of goods, human capital, and finances.
Under the risk scenario for 2027, this geopolitical bonus begins to exhaust itself as opportunities for new inflows narrow - both due to a potential easing of tensions in neighboring regions and as a result of their escalation. At the same time, regulatory pressure from the West on financial and trade chains passing through Central Asia and the Caucasus is intensifying, while Russia and China seek to consolidate their economic influence in the strategically important region.
Under such conditions, countries that have successfully pursued a multi-vector policy will face a tough choice of priorities, increased costs for conducting trade operations, tighter compliance control, and heightened caution from foreign investors.