Optimistic Outlook

Yesterday the Central Bank of Azerbaijan for another half a percentage point cut the refinancing rate. Since July last year, it was 3.5% (reduced from 4.25%), but now it is at the level of 3%.

Turan asked the Chairman of the Center for Economic and Social Development (CESD), an economist Vugar Bayramov to share his expectations of the CBA innovation.

- What will change after the reduction of the refinancing rate by the Central Bank?

- Firstly, the move along with the requirement to reduce the percentage of fees when issuing consumer loans may lead to lower real interest rates in this segment. In addition, banks engaged in "retail banking" first raised the rates on loans, then they were forced to reduce because of fallen demand from customers. Moreover, the leading banks in the country have access to the centralized credits, so decline in the CBA accounting rate will allow credit organizations to reduce real interest rates on loans. The decrease in the discount rate has a psychological component - the end user increased confidence in the banking system and in the central controller.

- Will this affect the recovery of the financial infrastructure on a national scale?

- By the way, in the past two months it has been less demand for dollars and other foreign currency, which also stimulates the build-up of foreign exchange reserves of the Central Bank. Moreover, against the background of the regulation of costs of currency intervention CBA moves from the exchange rate policy to the interest rate policy. Moreover, after the Central Bank of the country reports the President on the actual bank loans, virtually all the banks will be forced to move to the new interest rates.

And most importantly - real decline in interest crediting bank will promote banking investment in the development of small and medium-sized businesses on a new, more lenient interest. Finally, the monitoring carried out by the Central Bank at the end of each month in the real economy will allow the public to be more involved in raising the level of entrepreneurship. --17D-