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CBA: increase of money supply in Azerbaijan economy will not bring positive result

01 May 2013 12:14 (UTC +04:00)

Abdullayev says the talk is firstly about falling of approximately 70% of manat money supply (M2 board) to share of cash money (M0 board). So, banks carry out their operation with 30% and in this case demand for money is not met by money in banks and consequently, the price of the money remains high.

According to him, increase of M2 board by CB will not bring positive result. Therefore, it’s important to reduce share of cash money in M2 board and increase cashless payments.

CB official thinks that the volume of fund in the disposal of the banks will increase. Generally, base reason of high interest rates is related with expensiveness of funds forming banks’ resource base. For cheapening of resource base, increase of M2 board will not help, on the contrary, it can cause negative results, including increase of inflation.

Note that monetarization of Azerbaijan’s economy (money supply/GDP ratio) makes approximately 26% and this lower than developed countries. But, in those countries, share of cash money in money supply is 10-20%. So, money supply, which is in the circulation in the banks and financial sector, participates in lending and other bank operations and consequently, the price of the money drops.