Approximately 50 days have passed since TBC Capital published its report “Uzbek Sum – A Safe Asset?” during the early days of the Middle East conflict. Developments over the past two months have largely validated this assessment: unlike the vast majority of partner-country currencies, the Uzbek sum has shown virtually no depreciation against the US dollar and is currently trading approximately 1.5% above its pre-escalation level.
What explains the resilience of the Uzbek sum? A key factor is the structural strength of Uzbekistan’s economy, underpinned by a diversified export base. On one hand, the country benefits from countercyclical gold exports; on the other, it maintains exposure to more procyclical commodity goods. That said, gold prices have declined from their record highs at the beginning of the year, while the US dollar strengthened significantly in global markets—particularly prior to the ceasefire agreement. As with any open economy, external factors do play a role. However, the most critical driver of both current and future exchange rate dynamics is the implementation of an inflation-targeting regime and the growing credibility of the central bank.
In this context, the Central Bank of Uzbekistan’s capacity to fully implement inflation targeting has improved significantly, supported by ongoing and completed reforms. This view is shared by the International Monetary Fund, which projects inflation to decline to the 5% target by the end of next year, despite the ongoing geopolitical tensions. As highlighted in previous TBC Capital publications, disinflation is a key pillar of exchange rate stability in Uzbekistan—and vice versa. This principle underpinned our forecast back in 2024 regarding the potential appreciation of the sum, at a time when it diverged from market consensus. Accordingly, convergence toward the inflation target also implies exchange rate stability.
Recent data further supports this narrative. In March, annual inflation stood at 7.1%, while seasonally adjusted annualized monthly inflation reached 5.9%. Notably, in September 2025, annualized monthly inflation dropped below the target level for the first time, declining to 4.1%. Beyond supporting disinflation through lower import prices, exchange rate stability also plays a crucial role in shaping inflation expectations. According to the central bank’s survey, the share of respondents identifying exchange rate fluctuations as the primary driver of inflation expectations reached a historic low as of December 2025.
Lower inflation and depreciation expectations, in turn, pave the way for declining interest rates. In April, Uzbekistan issued a three-year local currency-denominated sovereign bond at a yield of 12.25%. Given that the policy rate stands at 14%, this signals market expectations of further rate cuts, in line with TBC Capital’s forecasts. At the same time, hedging costs for the Uzbek sum in international markets have declined markedly. Nevertheless, both hedging costs and medium- to long-term interest rates—including those on private bank deposits—remain, in our view, relatively elevated. As a result, longer-term local currency instruments continue to offer attractive investment opportunities, particularly when assessed in foreign currency terms.
In addition, the expected normalization of interest rates is likely to have a positive impact on corporate valuations. Lower interest rates typically lead to higher market valuations, while reduced depreciation—or potential appreciation—of the sum increases the US dollar value of revenues generated across various sectors of the Uzbek economy.
On the risk side, geopolitical developments remain the primary concern. As always, particular attention should be paid to the currencies of Uzbekistan’s key trading partners—China, Russia, and the European Union. Significant depreciation of the yuan, ruble, or euro could transmit pressure to the sum, although the country’s structural resilience would partially offset such effects. It is also worth noting that the sum has maintained stability—and even appreciated—despite declining gold prices and a stronger US dollar globally. Under normal circumstances, this combination would represent a key stress scenario for Uzbekistan’s economy. This further supports our view that lower gold prices do not automatically translate into currency depreciation, especially considering that gold prices remain historically elevated despite recent volatility.
For additional insights, readers may refer to TBC Capital’s April 2 publication: “Gold and US Dollar Volatility in the Context of an Optimal FX Strategy.”
Looking at other medium-term factors, Uzbekistan’s external balance is improving, investment inflows and international reserves have increased significantly, and credit growth has normalized. Overall, we maintain our position that interest rates in Uzbekistan are likely to decline further, while the Uzbek sum is expected to experience, at minimum, reduced depreciation—and potentially additional appreciation.
The full version of the publication is available at the following link.
