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Decreasing Interest Rates in World Markets not to Significantly Affect Azerbaijan’s Economy

Business Materials 24 January 2008 15:55 (UTC +04:00)

Azerbaijan, Baku, 24 January /corr. Trend I.Khalilova / The decision of the Federal Reserve System of the USA to decrease rates by 0.75% will not go without leaving a trace form Azerbaijan's economy, but now it is earlier to speak of the impacts.

Earlier the Federal Reserve System highlighted serious problems with the liquidity which delayed rates of economic growth. Decreasing the rates of refinancing will enable banks to give low-rate credits for the development of the real sector and housing and it will stimulate the domestic economy.

According to the Head of the Department of Statistics and Studies of the National Bank of Azerbaijan (NBA), Emin Huseynov, decreasing the rates will bring to reduction of prices for the USD, as well as reduction of prices of the financial resources in the world capital market and will make it beneficial for the commercial banks of Azerbaijan to attract financial resources in Azerbaijan's economy. However, it needs to take into consideration that the element of the prices may be surprising, and the premiums for the risks which may be and probably will be high for the investments into the developing countries. It means that the cost of the credit resources may not to change for the host banks.

Decreasing the interest rates in the world markets will affect Azerbaijan not only as borrower, but also owner of financial resources because Azerbaijan has huge strategic currency reserves in $7bln. This factor may bring to decrease of profitability of short-term assets. However, considering that the Country's reserves have been placed in both short-term and long-term assets, it is possible to say that the general profitability of the reserves will not sustain serious changes increase of profitability of long-term assets.

Decreasing the rates of may bring to increase of global liquidity, and in its urn, it stimulates the inflation processes of the trade partners of the country. On the other hand, decreasing the rates may help further fall the USD in relevant to key currencies and it may cause fall of the nominal effective rate of AZN. The high inflation of the trade partners and fall of nominal effective rate may increase import of the inflation into the Country like 2007. According to Huseynov, the National Bank of Azerbaijan will attentively trail the macro-economic processes and take all necessary measures to ensure macro-economic and financial stability in the country.

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