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"Report": Reduction of discount rate in Azerbaijan will make banks to expand crediting activity

"Report": Reduction of discount rate in Azerbaijan will make banks to expand crediting activity
Banks will not direct their resources only to government bonds and deposit auctions

Baku. 10 April. REPORT.AZ/ By the decision of Board of Directors of Central Bank of Azerbaijan (CBA) reduction of discount rate from 13% to 11 %, and reduction of cap of interest rate collar from 16% to 14% and keeping the floor of interest rate collar at the level of 8% will make local banks to expand their crediting activities.

Analytical Group of Report News Agency believes that the recent decisions should be evaluated as an attempt to enliven the national economy and the increase the rate of economic growth.

In Azerbaijan, the discount rate didn’t have the power of influence on development of credit interests for a long time. The discount rate and the market interest rate markedly differ from each other. Although some leverages were used in the framework of monetary and crediting policy after devaluation of manat in Azerbaijan, the increase of interest rates of the funds attracted in national currency also was an important issue.

There were two fundamental reasons of marked increase of discount rate by the Central Bank. One of the reasons was that the agency wished to rehabilitate confidence in AZN and for this purpose to improve earning capacity of the national currency. Only in such case people will prefer to save their money in manat and this step proved itself. The pressures against manat have decreased already and the regulation agency wished to change over to moderate monetary and crediting policy and to stimulate banks for crediting the economy by reducing the costs of crediting. Althouth recently the interest of banking sector in issue of credits has increased, the high level of interest rates prevent expansion of crediting. Although CBA keeps the floor of interest rate collar at the level (8%) satisfactory to credit agencies, the banks will not only direct their resources to government bonds and deposit auctions, but will try to give credits.

And another reason of the marked increase of discount rate in Azerbaijan was associated with temporary decrease of activity in the economy and the wish to regulate inflation. But under circumstances when the intensity of economic activity was low in any way and the value of national currency dropped, that decision was to some extent a difficult and useless decision. The exchange rate of manat has already stabilized, and level of inflation has lowered. We can say with confidence that increase of monetary stock in the framework of CBA’s moderate monetary and crediting policy will not result in remarkable growth of prices. 

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