Finance

Finance

National Bank of Azerbaijan slashes refinancing rate to 5%

29 January 2009 07:51 (UTC +04:00)

Under the decision, the central bank has also cut its mandatory reserve requirements for commercial banks in both home and foreign currency to 3% from 6%.
â€œIn the face of deepening global economic crisis, the National Bank continues to soften its monetary policy to protect the macroeconomic equilibrium and financial stability and economic performance. Besides, two-currency basket regime parameters have been modified with a view of further increasing the flexibility of the foreign exchange policy to keep up the competitiveness and financial sustainability of the economy,â€ said the statement.
The key rate cut is aimed at loosening monetary policy.
That is to say, easing monetary policy is needed and this shows that there are problems emerging in the banking system. Despite the restriction of consumer lending, commercial banks were faced with a liquidity problem, as proved by the sharp decline in repo transactions and an increase in the centralized credit market.
Thus, the central bank helps banks to solve the problem of liquidity, by making funds cheaper and reducing reserves.
It should be noted that a decision to abolish the reserve requirements may be more profitable for banks than cutting key rates.
In general, the credit market is be expected to intensify after the rates were lowered, otherwise, this step would be futile, and the rate cut would remain a theoretical figure playing no role in the rehabilitation of the banking system.