CBA: Normalization of banking sector to accelerate shift to new monetary policy

Baku. 28 December. REPORT.AZ/ The existing situation for effective application of inflation targeting regime prompts the need for the stage-by-stage shift to inflation targeting mode in Azerbaijan. Efforts to form alternative anchor to monetary policy will be tightened within the stage-by-stage shift to the new mode, Report informs referring to a statement of the Central Bank of Azerbaijan (CBA).

"In line with the best practice, the short-term interests in the inter-bank market may play the role of an alternative anchor. For this purpose, the works on activation of money market, as well as deepening of securities market and development of infrastructure elements serving interbank money market will be carried out jointly with the relevant bodies. New configuration of the CBA’s monetary policy instruments will also contribute to the intensification of the monetary market," the bank said in a statement.

At the same time, the statement noted that normalization of banking sector and strengthening of financial intermediation will accelerate the shift to the new monetary policy mode.

In the mid-term period, ensuring and supporting low, stable and predictable inflation is one of key factors for sustainable economic growth. Stable prices ensure a more effective distribution of resources in economy and economic growth at more sustainable rates.The experience of many developed and developing countries shows that inflation targeting mode is most optimal in terms of protecting of price stability and keeping inflation at low and stable level.

The CBA statement noted that in the inflation targeting mode inflation and inflationary expectations are mainly regulated by interest rates: "Under this mode, in the first round of transmission of monetary policy to economy, the bank’s interest rate policy affects the short-term interests in the market. In the second round, the short-term interest changes the aggregate demand and inflation by influencing the long-term value of money."