Improving the use of traditional monetary policy instruments Babayeva Lola Ibragimovna Qarshi Davlat universiteti

Improving the use of traditional monetary policy instruments
Babayeva Lola Ibragimovna
Qarshi Davlat universiteti
Turizm va marketing kafedrasi katta o`qituvchisi
Abstract: World In practice, the main goal of almost all Central Banks is national ensuring currency stability and achieving price stability. The central bank’s monetary policy is not just about money supply and interest rates the overall level of economic development, that is, everyone in our country affects the well-being of the citizen.
Keywords: Monetary policy, asset purchases, financial structure, economic and monetary, union, sovereign debt crisis, flow of funds
Ensuring the stability of domestic prices in the country is a guarantee of macroeconomic and social stability and a necessary condition for the successful implementation of programs to accelerate and develop economic reforms. At the same time, low and stable inflation is an important factor in ensuring balanced economic growth, industrial competitiveness and improving living standards. In this regard, the slowdown and stabilization of inflation should be one of the main goals of state economic policy.
Low and stable inflation creates the necessary conditions for the conversion of deposits of individuals and legal entities into long-term investments and contributes to the efficient distribution of available economic resources, reducing price imbalances in the domestic market. The task of ensuring price stability in the domestic market requires a clear strategy and detailed plan for the implementation of monetary policy, as well as effective tools and mechanisms to achieve targets. The use of a completely new approach to the formation of the exchange rate, in turn, will allow the Central Bank to improve monetary policy while focusing on price stability in the domestic market.
One of the next important steps in this direction was the adoption of the Decree of the President of the Republic of Uzbekistan dated January 9, 2018 “On radical improvement of the Central Bank of the Republic of Uzbekistan.” The decree sets the task of ensuring price stability as the main goal of the Central Bank and provides for appropriate measures to ensure the independence and institutional development of the Central Bank.
It should be noted that in the new realities that are emerging during the revision of economic policy approaches, it is important that the population and businesses correctly accept and support changes in the monetary sphere. The Concept of Development and Implementation of Monetary Policy of the Central Bank of the Republic of Uzbekistan in the Medium Term has been developed taking into account the leading role of the communication channel in shaping public opinion and implementing the inflation targeting regime. The purpose of this Concept is to inform and explain to the general public the conceptual framework for the transition to inflation targeting and the medium-term plans to create the necessary conditions for the successful implementation of this monetary policy regime.
At the same time, the successful implementation of reforms to liberalize the foreign exchange market is largely due to the effectiveness of measures to improve monetary policy, strengthen the activities of commercial banks and develop the banking system. Therefore, not later than the promulgation of the Decree of the President of the Republic of Uzbekistan “On priority measures to liberalize the foreign exchange market” the President of the Republic of Uzbekistan issued a decree on further development of monetary policy. And a package of measures for the development of monetary policy and the gradual transition to inflation targeting in 2017-2021.
A new phase of economic reforms aimed at liberalizing the economy and increasing the role of market mechanisms, which began in 2017, has identified priorities for the development of the banking system and monetary policy in the medium term. One of the important decisions in this direction was the practical steps towards the gradual liberalization of the domestic foreign exchange market through the introduction of the principles of formation of the national exchange rate on the basis of market mechanisms. In order to increase the effectiveness of monetary policy, the Board of the Central Bank decided to introduce additional monetary instruments to provide liquidity to commercial banks and attract liquidity from them. In accordance with this decision, the Central Bank intends to gradually implement the following operations:

• 
  Issuance of short-term refinancing loans secured by currency through auctions;
  
• 
  Attracting funds of commercial banks to short-term deposits of the Central Bank through auctions;
  
• 
  Placement of Central Bank bonds between commercial banks through auctions;
  

Attracting funds of commercial banks to the Central Bank for short-term deposits at fixed interest rates. At the initial stage, it is planned to conduct deposit and credit auctions, as well as regular lending operations. The next stage is the introduction of permanent 1-week fixed interest rate deposit operations. The main focus of auctions is the formation of interest rates in the interbank money market within the framework of monetary policy targets. Central bank bonds are issued in the event of a stable structural surplus of liquidity in the banking system. The types of liquidity and attraction operations by the Central Bank and the amount of annual interest rates on them.
The Central Bank announces advance deposit and credit auctions. Methods widely used by central banks in developed and developing countries include inflation targeting, monetary targeting, exchange rate targeting, and nominal anchor regimes. While the task of achieving inflation targets is the main goal for most central banks, the above-mentioned methods differ mainly in terms of speed and intermediate targets. This method of monetary policy involves controlling changes in the volume of monetary aggregates, reserve money and money supply in order to ensure price stability.
The effective implementation of this strategy requires a strong and constant link between inflation and monetary aggregates. At the same time, inflation targets are achieved by keeping the volume of monetary aggregates at an acceptable level. Monetary targeting regimes were actively used in the 1970s and 1980s in the United States, Canada, the United Kingdom, Germany, Switzerland, and other developed countries.
However, due to the development of financial markets in recent years and the introduction of new financial instruments, the volatile demand for money has led to a decline in the effectiveness of this method. As a result, the ability of central banks to influence the effects of changes in the money supply and to meet inflation targets has been limited. The weakening of the link between monetary aggregates and the inflation rate has led many central banks to abandon the practice of targeting monetary aggregates and introduce an inflation targeting regime. Under the nominal non-target regime of monetary policy, central banks are not obliged to achieve specific target nominal indicators. The long-term goals are economic growth, high employment and low inflation, while intermediate goals are not disclosed to the general public.
In order to achieve the target parameters of macroeconomic indicators, central banks use various quantitative monetary policy targets. In countries with low and low volatility of inflation and long-term results of monetary policy measures, it is advisable to use this regime. In the inflation targeting regime of monetary policy, the central bank announces a medium-term inflation target and monetary instruments are aimed at achieving this inflation target. This method of monetary policy is widely used in many developed and developing countries. The inflation targeting regime is an effective way to reduce the volatility of inflation and the duration of inertia, creating the conditions for achieving sustainable and balanced economic growth in the medium term.
The inflation targeting regime was first introduced in 1989 in New Zealand. Today, more than 30 countries, including Australia, Argentina, Brazil, the United Kingdom, Georgia, Israel, India, Canada, Poland, Turkey, Sweden, Japan and the Czech Republic, use this monetary policy regime. Among the CIS countries, Armenia and Russia have inflation targeting regimes. The central banks of Kazakhstan and the Republic of Belarus have announced plans and programs for the transition to inflation targeting in the medium term.
The choice of the inflation targeting regime in the conduct of monetary policy is explained by the advantages of this regime, as well as a number of problems observed in the exchange rate or aggregate targeting regimes. A clear definition of the central bank’s monetary policy goals and objectives, as well as its commitment to achieve inflation targets, will contribute to the formation of positive economic expectations in society. Achieving inflation targets in an inflation targeting regime requires a high degree of central bank independence. At the same time, the ability to adapt quickly to changes in macroeconomic conditions allows the central bank to focus on internal problems in the economy.
Increasing the transparency of the central bank in this regime will reduce inflation expectations and strengthen confidence in the central bank. At the same time, the transition to this regime and its effective implementation requires a set of important organizational, legal and macroeconomic conditions in the country. In particular, the task of achieving low and stable inflation should be the main goal of the central bank’s monetary policy, not only formally but also in practice.
The central bank is committed to achieving the inflation target based on the forecast of changes in price dynamics, which serves as an intermediate target. Targets for other macroeconomic indicators (economic growth, money supply, exchange rate, etc.) are not officially accepted. This requires the central bank to have a reliable analytical and forecasting base to assess the current inflation rate and expected price dynamics. The quality of the analysis, in many respects, requires the availability of reliable and detailed statistics that reflect the real dynamics of prices in the domestic market.
The effectiveness of the inflation targeting regime depends in large part on the degree of independence of the central bank in setting quantitative inflation targets and in choosing monetary instruments. The application of this regime also requires that fiscal policy should not take precedence over monetary policy, that is, monetary policy should not be focused on fiscal goals. One of the urgent tasks is to strengthen public confidence in monetary policy, as inflation expectations of the population and businesses play an important role in achieving inflation targets in the inflation targeting regime. Since the central bank’s interest rate is the main instrument of monetary policy in the inflation targeting regime, the effectiveness of this regime depends on the level of development of financial institutions and markets in the country.

At the same time, the central bank influences the level and dynamics of interest rates in the money market through the provision of liquidity or redemption operations. In this case, it is important that the central bank sets the interval of inflation. The central bank will focus on ensuring that targets remain within this range. In particular, the fact that the main factors influencing inflation in developing and CIS countries are non-monetary and are beyond the control of the central bank significantly limits the effectiveness of monetary policy instruments. Another important requirement for applying the inflation targeting regime is the selection of a price index that reflects the real situation as a target.

In some countries, the Consumer Price Index (CPI) is replaced by indices that exclude a number of factors, such as changes in world markets, administrative prices, and seasonality. The use of modified indicators increases the risk of differences with the official IBI or GDP deflator. The existence of an effective mechanism for monetary policy measures to influence aggregate demand and inflation is crucial in ensuring price stability in the economy. In the inflation targeting regime, the Central Bank adjusts and sets interest rates based on the inflation target. As inflationary risks increase in the economy, the central bank traditionally tightens monetary policy by raising interest rates. The extent and timing of the impact of these measures on the real sector of the economy will be determined by the effectiveness of monetary policy transmission mechanisms.
At the current stage of monetary policy development, priority will be given to the introduction of modern monetary instruments, improvement of existing ones and strengthening their mechanism of influence, as well as the implementation of comprehensive measures to eliminate domestic economic constraints. In the new economic reality, a set of measures to increase the efficiency of the use of monetary instruments also provides for the improvement of mandatory reserve requirements. At the same time, the current mandatory reserve regime will be improved by optimizing reserve standards, currency and calculation bases, taking into account the prudential requirements for banks’ liquidity.
In accordance with the current procedure of compulsory reserve, the reserve currency is chosen independently by commercial banks. This practice allows banks to keep foreign exchange assets in reserve by using them in the required reserves and to use the resulting funds in the national currency. Today, the share of foreign currency in the required reserves of commercial banks in the Central Bank is more than 90% of the total, which reduces the effectiveness of this instrument in regulating the liquidity of the soum. The use of interest rate instruments in monetary policy in the inflation targeting regime focuses on the liquidity management objectives of commercial banks. At the same time, the efficiency of the Central Bank’s interest rate instruments will be increased due to the task of activating the use of market instruments. In particular, in order to increase their impact, it is planned to expand the types and scope of operations to provide liquidity and attract funds of commercial banks to the deposits of the Central Bank. The introduction of the base rate and interest rate corridor on monetary operations as the main target of monetary policy will increase the effectiveness of the Central Bank’s interest rate instruments.
In addition, the operational parameters of monetary policy will be reconsidered, taking into account international experience. In the future, the terms of the Central Bank’s lending operations will be reconsidered, their types will be optimized and generalized. At the same time, deposit schemes will be introduced that will allow commercial banks to place excess reserves in the national currency, which will ensure that the lower limit of the interest rate corridor is maintained. One of the main market instruments of liquidity regulation in the banking system by the central bank is open market operations.
In the context of the active phase of monetary policy, it is planned to conduct open market operations on a regular basis to ensure that the liquidity of the banking system is in line with the target operational indicators. In the inflation targeting regime, it is important to have a communication channel aimed at increasing the transparency of monetary measures and preventing unreasonable inflation expectations.
Therefore, the Central Bank is actively working to explain the reasons and essence of the decisions to the population and the business community through electronic and print media. An analysis of the specifics and effectiveness of monetary policy regimes, taking into account the characteristics of the national economy, shows that the inflation targeting regime is very suitable for the task of achieving price stability as a priority goal of the Central Bank in the medium term. As a result, the necessary legal framework and basic economic conditions have been created for the gradual transfer of the principles and methods of monetary policy to inflation targeting.
In particular, measures to liberalize foreign exchange policy and ensure the formation of the exchange rate in market conditions, clearly define the priorities and practical independence of the Central Bank, the transition to an active phase of monetary policy, improve methods of calculating and estimating inflation, as well as transparency practical measures such as increasing and strengthening communication policy will create the basic conditions for the transition to inflation targeting.
At the same time, the existing risks and obstacles make it difficult to fulfill the task of introducing an inflation targeting regime. The Central Bank, in turn, will focus on strengthening the forecasting and analytical base, improving monetary policy instruments and strengthening their channels of influence, developing communication policies and increasing public confidence. The Central Bank will coordinate and cooperate with relevant ministries and agencies in the implementation of measures for the gradual transition to this regime.
In general, the transition to inflation targeting requires a radical overhaul and improvement of all aspects of monetary policy. This, in turn, means a qualitatively new stage in ensuring macroeconomic stability, which is the basis for sustainable economic growth in the long run. This Concept has been agreed with the Ministry of Economy and the Ministry of Finance of the Republic of Uzbekistan.
References
1. Abdullayeva Sh. Z. Bank risklari va kreditlash. – T.: Moliya, 2002. – 304 b.
2. Boboqulov T. I. Milliy valutaning barqarorligini ta’minlash: muammolar va yechimlar. – T.: Fan va texnologiya , 2007. – 184 b.
3. Tojiyev R.R. “Xalqaro valuta-kredit munosabatlari”. Toshkent “Adabiyot jamgʻarmasi” 2006y. 18-bet
4.. Жумаев Н. Х. Худойберганов Ж. Ш. Международные финансовые отношения. Валютный курс и пути их регулирования. – Toshkent: Iqtisod-moliya, 2006. – 132 c.
5. Mullajonov F. M. Oʻzbekiston Respublikasi bank tizimi. – Toshkent: Oʻzbekiston, 2001. – 296 b.
6. Абель Э., Бернанке Б. Макроэкономика, 5-е изд.: Пер. С англ. –СПб.: Питер, 2012. C. 683.
7. Мэнкью Н. Г. Макроэкономика. Пер. С англ. –М.: Изд-во МГУ, 1994. C. 679.