Demand exceeding supply on Azerbaijani CBA's auctions from 2Q2020

Demand exceeding supply on Azerbaijani CBA's auctions from 2Q2020

BAKU, Azerbaijan, Jan.11

By Zeyni Jafarov - Trend:

Easing of Azerbaijan's monetary policy in 2020 was accompanied by a decrease in the interest rates on deposit operations and short-term bills of the Central Bank of Azerbaijan (CBA), as well as a decline in the yield of government securities, Trend reports referring to the CBA.

As reported, interest rates in the interbank market, as well as interest on deposits and loans, were balanced with risk premiums and easing of monetary conditions. In general, since January 2018, the average interest on new loans in the national currency has decreased by 5.5 percentage points. In the real sector, risks compounded by the impact of the COVID-19 pandemic have limited further interest rate declines.

In 2020, the level of deposits' dollarization continued to lower. At the beginning of the year, the share of foreign currency deposits and the deposits included in monetary aggregates made up 54.9 percent, while by the late March increased to 56.5 percent, and by November gradually decreased to 50.2 percent. The dollarization of deposits of individuals by the early December 2020 had made up 52.7 percent.

In order to effectively manage liquidity in the economy, the Central Bank adequately used various market operations. Depending on the liquidity of the banking system, the demand for sterilization instruments of the CBA varied by months. So, during 2020, the country's Central Bank had held 62 deposit auctions and 46 auctions for the placement of notes.

In order to prevent the emerging threats to macroeconomic stability under the pandemic’s influence and to maintain balance in the foreign exchange market, the concentration of the sterilization portfolio was reduced. Starting from the second quarter of 2020, at auctions organized by the Central Bank, demand exceeded supply, and the yield on these instruments was approaching the lower limit of the interest rate corridor.

Earlier the chairman of the Central Bank of Azerbaijan Elman Rustamov noted that the country's financial sector demonstrates greater stability than predicted.

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Follow the author on Twitter: @jafarov_zeyni

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