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    Report: CBA’s latest decision will lead to interest rates reduction only at deposit auctions

    Preservation of upper limit of percentage corridor at the same level will keep interest on deposits stable© Report

    Baku. 22 June. REPORT.AZ/ Today’s decision of the Central Bank of Azerbaijan (CBA) to reduce the lower limit of the interest corridor on liquidity operations from 12% to 10% will lead to a reduction in the cost of funds raised at deposit auctions (lower interest rates).

    Analytical Group of Report notes that the percentage corridor reflects range of rates of central banks on attracted and placed funds. Reduction of lower limit, i.е. percent on funds placed by the CBA, shows that at subsequent deposit auctions, rates will begin to fall.

    The preservation of upper limit of the interest corridor, in turn, indicates that the CBA does not plan to issue loans to banks at low rates (as of May 1, centralized obligations amounted to 6,586.2 billion manat). At the same time, this will lead to the preservation of high interest rates on deposits and deposits attracted by commercial banks from the population. This suggests that banks need liquidity, in particular, manat funds.

    The analytical group Report believes that the CBA in the short term does not intend to reduce the upper limit of the interest corridor. This will be hampered by a drop in oil prices on the world market, an increase in the real effective exchange rate of manat in connection with the strengthening of the dollar in trading partner countries. If banks start lowering interest rates, this will lead to outflow of funds from manat deposits and increase demand for dollars. "Observations show that even with attractive proposals for manat deposits, the population's demand for dollars continues to be high, and it is not going to transfer to manat deposits even though the interest rate on dollar deposits does not exceed 3%." The CBA will need a lot of effort to again restore confidence in manat, "analysts emphasize.

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