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Inflation â€œeatsâ€ half of dividends on bank deposits in Azerbaijan

31 January 2011 13:03 (UTC +04:00)

According o CBAâ€™s calculations, the annual real average interest rate on deposit in manat was 5.41%. Note that, real interest rate takes the inflation into account and this made 5.7% in accordance o the results of 2010, in Azerbaijan.

At the same time, as at January 1, 2010, average interest rate made 11.72% and if we take the 1.5%-inflation in 2009 into account, we can see the real interest rate as 10.22%. Thus, according to results of 2010, average real interest rate has decreased by 1.9% compared to a year ago.

Note that, inflation cheapens the deposits and the interest rates are accounted as subtracting the inflation from interest rates offered by banks. Thus, the populationâ€™s income in fact on deposit decreases in accordance to inflation.

Thatâ€™s why, it important to take into account the inflation when the interest rate is determined. But bank donâ€™t do it, because of this can reduce their interest income. In general, inflationâ€™s â€œeatingâ€ the interest income is not so bad, because of the crisis in several developing and developed countries has moved to the negative zone.