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National Bank of Azerbaijanâ€™s discount rate cut takes effect

03 November 2008 10:35 (UTC +04:00)

Baku. Vahab Rzayev â€“ APA-Economics. The National Bank of Azerbaijanâ€™s recent decision on discount rate cut and compulsory reserve requirements took on November 3.
The central bank passed a decision last week to cut the key interest rate to 10% from 12%, reducing the interest rate ceiling to 15% from 17% and the interest rate floor to 1% from 3%.
Besides, under the decision, compulsory reserve requirements on banksâ€™ liabilities in national and foreign currencies dropped to 9% from 12% and compulsory reserve requirements on banksâ€™ external liabilities fell to 0% from 5%.
the central bank said in a statement that it resorted to an influential package of measures to protect financial stability amid the financial situation in the world.
The key rate cut is aimed at loosening monetary policy.
Thus, the central bank helps banks to solve the problem of liquidity, by making funds cheaper and reducing reserves.
Also, the decision to abolish the reserve requirements may be more profitable for banks than cutting key rates.
Analysts expect the commercial banks to increase interest rates on deposits in order to receive funds after the global financial crisis made it difficult to borrow from foreign sources.