Azerbaijan Should Not Reduce its Interest Rate to Europe and USA Level: Expert

Business Materials 11 November 2008 10:38 (UTC +04:00)
Azerbaijan Should Not Reduce its Interest Rate to Europe and   USA Level: Expert

Azerbaijan, Baku, 10 November/ Trend / The actions of world's central banks, which have repeatedly lowered the key interest rates in order to protect their economy from the global financial crisis, will have a positive effect on the markets of the countries. More loans will be directed to real economy, liquidity flows will cease to be so high. The decline in interest rates will definitely push the decline in loan-deposit rates of commercial banks. The European countries, including Azerbaijan, where people are linked to credits, will feel tremendous relief.

The European Central Bank (ECB) cut its base interest rate from 3.75% to 3.5%, the Bank of England lowered its rate from 4.5% to 3%. The central banks of Switzerland, Czech Republic, Sweden, Canada, Japan and the U.S. Federal Reserve go in the same vein. The National Bank of Azerbaijan has also continued to decline its interest rates. As a result, the borrowing rate was reduced to 10% - first from 15% to 12%, and then, starting from October 31, to the current 10%. The maximum limit declined from 20% to 17% and reached 15%, and the minimum limit decreased from 3% to 1%. But against the background of expectations of positive developments in the economies of countries, lowering the discount rate has another side as well. For example, the decline in deposit rates may affect the profits of commercial banks, which may be threatened loss of the positive trend of individuals' money influx. In Azerbaijan, for example, the deposit base of Azerbaijani banks in an annualized pace grew by 38.5%, but in September 2008 it decreased by 1.7%. The Azerbaijani banks have not yet considered a change in interest rates on deposits, and plan to do that not earlier than next year when considering their strategies for next year. The decline in the discount rate in Azerbaijan is not a forced measure, and the rate should not be reduced to the level of Europe and the United States, as the National Bank of Azerbaijan in time protected the banking sector from the global financial crisis. External borrowings of the Azerbaijani banking sector made up 18% of the total drawn funds and reached $2bln. As compared with other countries where external debts reach 90-100%, the figure is low and allows securing the Azerbaijani banks from the influence of the global financial crisis.

Leyla Abdullayeva, expert of the Trend analytic centre.

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