National Bank of Azerbaijan: Refinancing rate cut is a measure of psychological nature

National Bank of Azerbaijan: Refinancing rate cut is a measure of psychological nature
# 04 December 2008 12:49 (UTC +04:00)
According to him, lowering the discount rate is not linked to any expectations of the financial crisis in Azerbaijan, but it is a signal to the banking system on the availability of cheaper financial resources.
The National Bank of Azerbaijan passed a decision to cut the key interest rate to 8% from 10%, reducing the interest rate ceiling to 13% from 15% and laving the interest rate floor unchanged at 1% effective December 1
Under the decision, mandatory reserve requirements on banks’ liabilities in national and foreign currencies decreased to 6% from 9%.
In response to the global financial crisis, central banks in most countries have moved to reduce interest rates to bail out the economy has and now the process continues. It is for this reason that Azerbaijan’s central bank lowered the discount rate from 15% to 8% per annum over one month and a half. The measure implies about the approaching of the negative impact of the crisis.
Abdullayev doesn’t not agree with this approach, emphasizing that these steps are only designed to reassure banks and other financial market participants.
According to him, the main impact of the global financial crisis on the banking system of Azerbaijan is to that suspension of funding from abroad and the emerging need of early repayment of foreign debt obligations.
Abdullayev said low discount rate indicates the possibility for banks to receive low-interest loans from the NBA in the event of liquidity problems.
He added that only UniBank requested and obtained a loan of AZN 50 million as liquidity support from the National Bank of Azerbaijan.
He noted that softened monetary policy by decreasing the refinancing rate and mandatory reserve requirements brought in available liquidity of AZN 350 million for the banking system.

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