BAKU, Azerbaijan, Jan. 16
By Fakhri Vakilov - Trend:
Uzbekistan’s Central Bank introduced the basic rate instead of the refinancing rate and established an interest corridor for monetary operations, Trend reports citing the Central Bank's press service.
The introduction of the base rate and the interest rate band will help determine the real value of money through regular operations on the open market. The level of the basic rate will be discussed at a meeting of the Board of the Central Bank at least 8 times a year (now the refinancing rate is determined 4 times a year).
Furthermore, the basic interest rate is set at the level of the current Central Bank refinancing rate - 16 percent, the interest rate band - at a rate of ± 1 percentage point. Moreover, the refinancing rate remains valid, and in the cases described in the legislation, as well as in other cases, its size is equal to the size of the basic rate.
The operational objective of the Central Bank is to effectively manage interest rates on the interbank money market and ensure that they are within the established interest rate band using the base rate and monetary operations.
In order to prevent sharp fluctuations in interest rates in the money market, to form them within the established interest rate band or near the level of the main interest rate, the Central Bank uses the following types of monetary operations (instruments): one-day (overnight) currency swaps and permanent access repurchase agreements are provided at fixed interest rates and determine the upper limit of the interest corridor (base rate plus 1 percentage point); one-day (overnight) deposits of constant access are provided at fixed interest rates and determine the lower limit of the interest corridor (base rate minus 1 percentage point).
In addition, the Central Bank uses the following tools: currency swap auctions, repurchase agreement and deposit auctions for up to 2 weeks, the interest rates for which are set near the level of the Central Bank's basic rate; placement of short-term (three- and six-month) bonds of the Central Bank among commercial banks through auctions to regulate the structural surplus of liquidity in the banking system and form a base of collateral for liquidity operations for commercial banks.
The Central Bank determines the direction of monetary policy through the base rate, from which all other money market rates are repelled, including short-term.
A change in the basic rate of the Central Bank implies the corresponding changes in market interest rates that occur as a result of the operating mechanism of direction of monetary policy. It affects the cost of financial resources and the level of interest rates in the economy, as well as the financial and investment decisions of the population and business. The interest rate policy is aimed at maintaining a certain level of interest rates in the economy to ensure positive real rates on assets in national currency.
“Refinancing rate is the interest rate of the Central Bank that is used in the regulator’s operations with commercial banks to provide loans. The refinancing rate essentially works in one direction; the main rate is for the provision and absorption of liquidity. This is a full-fledged interest-bearing instrument,” the Central Bank noted.
In case of risk of overheating/overcooling of the economy (too high demand in relation to the potential issue of money supply), the Central Bank may decide to increase/decrease the basic interest rate. So, borrowing from the Central Bank by banks is becoming more expensive/cheaper, which affects the corresponding cost of interbank loans, and, therefore, interest rates on loans to the entire economy.
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