Azerbaijan's monetary policy review for 1Q2020
BAKU, Azerbaijan, May 29
By Eldar Janashvili – Trend:
Monetary policy instruments in Azerbaijan for the first quarter of 2020 were introduced taking into account internal and external factors affecting inflation, as well as the liquidity of the banking system, Trend reports citing the Central Bank of Azerbaijan (CBA).
During the reporting period, CBA made the necessary adjustments to the parameters of the interest rate collar for its liquid operations, taking into account significant changes in the global environment and their impact on the country's economy and financial markets.
“The board of the CBA discussed the parameters of the interest rate collar twice in the first quarter of 2020. At the first meeting, it was decided to reduce the base point 25 of the discount rate from 7.5 percent to 7.25 percent, the upper and lower limits of the collar were determined in the range of ± 1.75 percent of the discount rate (9 and 5.5 percent). At the second meeting, the board decided to keep the discount rate unchanged at 7.25 percent, the upper limit of the collar was increased to 9 percent with 6.75 percent remaining. The taken decision serves to maintain an optimal balance in the dilemma of ensuring macroeconomic stability and achieving the priority goal of economic activity, as well as supporting employment and exchange rate stability, which is its main anchor,” said the CBA.
Aiming at effective liquidity management in the economy, the Central Bank actively conducted various urgent market operations over the indicating period. Depending on the liquidity of the banking system, the demand for sterilization operations performed monthly by the CBA varied.
"Over the reporting period, CBA held 24 deposit auctions to raise available funds in national currency. The balance of funds raised on deposit operations amounted to 682.4 million manat [$401.4 million] at the end of the reporting period," the CBA noted.
Along with deposit operations, CBA held seven auctions for the sale of long-term notes. In two of these auctions, 84-day notes were placed, in three of these - 168-day notes, and in two - 252-day notes. In general, the total balance of sterilization through long-term notes amounted to 322.3 million manat ($189.5 million).
Since March 2020, CBA has taken adequate decisions on the terms of sterilization of instruments to prevent threats of the coronavirus pandemic to macroeconomic stability and maintain balance in the foreign exchange market in the face of increasing negative consequences for the global economy.
Also, reserve requirements were maintained unchanged and their application was continued on the basis of the average mechanism, which became one of the factors that positively affect the banks’ flexible liquidity management. According to the results of the monitoring over the first three months of 2020, the total balances of correspondent accounts of banks with CBA exceeded the total amount of funds that should be stored as required reserves.
(1 USD = 1.7 manat on May 29)
Follow the author on Twitter: @eldarjanashvili