IMF highlightes role of monetary policy, exchange rates in curbing inflation in region

Inflation dynamics in the countries of the Middle East and Central Asia are developing unevenly, with a decrease in price pressure noted primarily where the tightest monetary policy is implemented, Assistant Director of the IMF's Middle East and Central Asia Department Roberto Cardarelli said during the presentation of the International Monetary Fund's regional economic outlook for the Middle East and Central Asia held in Uzbekistan, Report informs.

According to the fund representative's assessment, the positive impact of regional factors on the economy intensified in 2026. At the same time, inflationary processes in different countries are proceeding unevenly: in a number of states, including Uzbekistan and Kazakhstan, the rate of price growth has indeed slowed down. However, in the vast majority of the region's countries - approximately six out of eight - inflation continues to remain above established targets, which remains the main source of concern for IMF analysts.

As Cardarelli emphasized, the terms-of-trade shock and the rising cost of energy resources provoked an acceleration of inflation in several states.

"The IMF identifies two key factors explaining the differences in inflation dynamics and the pass-through effect of high costs. First, it is the stance of monetary policy: countries where inflation has declined in 2026 (in particular, Kazakhstan and Uzbekistan) are characterized by the tightest monetary policy parameters. Conversely, an acceleration of inflation has been recorded in states with loose and stimulating monetary policy (for example, in Kyrgyzstan). The second factor is the dynamics of the exchange rate. The strengthening of national currencies in nominal effective terms in many countries of the region helped mitigate inflationary pressure from the rising cost of energy carriers," Cardarelli noted.

According to his assessment, the most pronounced exchange rate appreciation was observed in Kazakhstan, which, being an oil exporter, simultaneously demonstrated a decrease in the overall level of inflation this year. The IMF also draws attention to the fact that the structure of the cost pass-through effect is largely determined by the system of subsidies and other forms of state support, a detailed analysis of which is contained in the materials of the new fund update.

"The countries of the Caucasus and Central Asia should refrain from introducing broad energy subsidies in response to a possible increase in energy prices, as such measures can increase inflationary pressure and complicate the work of central banks to curb price growth," Cardarelli added.