Narrowing interest corridor in Azerbaijan to regulate domestic market liquidity

7 May 2020 20:29 (UTC+04:00)

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Central Bank of Azerbaijan (CBA), narrowing the upper and lower limits of the interest rate corridor, which includes placement of one-day funds, can flexibly regulate the domestic market liquidity, Executive Director of the Azerbaijani Center for Economic Reforms Analysis and Communication Vusal Gasimli said, Trend reports.

According to Gasimli, CBA is working to reduce the spread between its interest rate corridor and the average market percentage.

"In this sense, based on international practice, it would be also advisable to determine the average market percentage in Azerbaijan, which can be used in determining interest in the money market and monetary policy as a benchmark," he said.

"For example, indexes such as EONIA in the euro zone, RUONIA in Russia and TONIA in Kazakhstan are used to provide the interbank short-term interest rate," the director noted.

He also noted that as of now, the interest rate corridor is in the narrowest limits for the last year, since the upper limit of the corridor is constantly decreasing, and the lower one is increasing, thereby reducing difference between the limits.

"For example, if a year ago, the difference between the lower and upper limits of the interest rate corridor made up 4 percent, now this figure has dropped to 1.25 percent, while reducing the spread between credit and deposit interests," Gasimli pointed out.

Commenting on the retaining of the discount rate, the expert also said that the occurrence of deficit in the payment balance does not allow lowering the discount rate, threatening the stability of the manat and inflation control.

"Thus, the parameters of the interest rate corridor should be balancing, ensuring financial stability, inflation control and financing of the real sector," he added.

By decision of CBA, the discount rate remained unchanged, and the upper limit was reduced from 9 to 8 percent, while the lower limit remained at 6.75 percent level.

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