The Managing Board of the National Bank of Azerbaijan (NBA) made resolution on increase of accountancy rates by 1% from 1 October 2005. The NBA told Trend that respectively the refinancing rates will comprise 9% instead of previous 8%.
This year the NBA twice increased the refinancing rates. The first increase dated to 23 May 2005 when the refinancing rates were increased by 0.5% from 7% to 7.5%, and the second was on 1 July 2005 by 0.5% to 8%.
An increase of the refinancing rates will enable to intensify the collection of manat assets for sterilization and promote a cut in inflation pressure, as well as establishment of a balance between demand and supply in the monetary market.
As a result of the measures taken by the NBA in accordance with the presidential decree on strengthening the anti-inflation measures in Azerbaijan, dated 31 May 2005 the inflation ratio, which considerably grew in the first quarter, dropped in the second quarter, while in August it was 1.6% down as compared December 2004.
In countries with developed market economy the refinancing ratio is a price of money in economy. Its increase will entail a rise in the credit interests and cut in demand for them from business. In the contrary drop in refinancing ratio decreases the cots of credit and increase demand for it. In the period of rise of inflation the government as a rule increases the refinancing ratio, while in the period of financial stability the figure usually.
The refinancing rate does not influence in the demand for money at the credit market. The point is that community deposits rather the centralized credits of the NBA are the source of money in the market. Not the refinancing ratio, but rates of deposits paid the banks to depositors, acts as the cost of the credit. Besides, the credit market of the country is still unable independently define real price of money, allowing the case of issue of credit at rates exceeding the average rare of credit in the entire economy. Such situation cannot alter the refinancing ratio to an original beacon of the market.
Thus, an increase of the refinancing rate by the National Bank can be considered as a formal act. The specialists of the bank also confess it. For instance, they do not name the figure indicating the scale of braking of inflation as a result of increase of the refining ratio. The rates of the national manat still remains a major source of impact on inflation. As a result of consolidation of manat by 1% with a lag of 5-6 months the inflation pace diminishes by 0.6-0.7%.
However, the consolidation of the nominal rate of manat amid high inflation leads to its real consolidation. Thus, in August as compared to December 2004 the real consolidation of manat made 9.7%. Though real consolidation of manat does not occur in the long-term period, the reserve for support to long-term real rate within the competitive strength of the national economy decreases.
In this situation there might evolve a question whether how expedient is it to increase the refinancing rates from the aspect of real exchange rates. Theoretically increase of reining rates might promote short-term flow of foreign capital to the country, which is sure to make an additional pressure on the currency market, intensifying the net consolidation of manat. From this aspect increase of the refining rate is not seem so dangerous. Firstly, direct foreign investments flow in the financial market of the country. However, still we do not necessary conditions for the circulation of short-term speculative capital. Secondly, increase of the refining rate will not affect on the value of money in economy. It means the increase will not affect a rise of money mass, which is the necessary term for capital flow.