What Will Rate Cut Give?

Yesterday the Central Bank lowered the discount rate (refinancing). Since July last year, it was 3.5% (reduced from 4.25%), but now it is at the level of 3%.

Asked what it will give, the expert of the public association Assistance to Economic Initiatives Samir Aliyev told Turan the Central Bank of Azerbaijan in recent years, increases the volume of centralized credits. In January-May of this year, their aggregate level increased by 1 billion (from 3.2 to 4.2 billion) manats. In this case, the total weight of the credit share of centralized credits grew from 17 to 21%, which is a very solid a share to influence the capital market. However, any real effectiveness of this step is not observed, because many banks cannot seize the opportunity to obtain loans in the CBA. The policy of the Central Bank may lead to cheaper loans, but the reason for this will be not reduction of the refinancing rate from 3.5% to 3%, as the CBA announced yesterday.

"This is due to two factors. Firstly, it is the sharp decline in banks' demand for dollars due to the February devaluation of the national currency. As you know, since the beginning of the year the dollarization of deposits started. The second reason is the CBA requirement to reduce interest fees, which is an administrative step and does not lead to long-term positive change. The experts of the financial market suggest that soon many banks curtail the activities of branches and will resort to a reduction in the number of employees. In addition, some credit institutions will leave the market or get consolidated. --17D-