BAKU, Azerbaijan, June 26. The Central Bank of Azerbaijan (CBA) has decided to keep interest rates at 9 percent after its gradual increase in the framework of tightening monetary policy, Doctor of Philosophy in Economics Faraj Akhundov told Trend.
The tightening of monetary and credit policy has four stages behind it.
"The first is a collision with increased inflation. The second is an increase in interest rates. The third is the expectation of an effect. The fourth is lowering rates to the initial level, taking into account the current economic situation and economic growth. The CBA has raised the discount rate to 9 percent and at the moment left it unchanged in order to assess the effect. For Azerbaijan, this increase did not have an impact on the activities of banks and credit policy," Akhundov said.
“What does this mean for ordinary citizens of Azerbaijan? The increase in rates did not have a tangible impact on them. To combat inflation, there is no other tool than raising rates. Therefore, the Central Bank raised the rate gradually by 0.25 percent, which is insignificant for Azerbaijan," he added.
“When the CBA reached the level of 9 percent, they stopped the policy of raising interest rates to assess the effect in the fight against inflation. This rate should be maintained for a certain period of time. A similar policy was carried out by the Federal Reserve Bank of the US. They also raised the rate from 0.25 to 5-5.25 percent and did not raise it further to expect the impact of high-interest rates on inflation," he explained.
According to him, the CBA used not only an increase in the interest rate to combat inflation.
"Accordingly, instruments have also been created, such as notes of the CBA, which are now traded in the form of securities on the financial market of Azerbaijan, that is, on the securities market of the Republic of Azerbaijan. Financial institutions and legal entities can participate in this market without any special restrictions. In this regard, taking into account the trading volumes and the data that the CBA gives us, we see that the interest rate on these instruments has stopped growing and is trading around 6 to 9 percent," he said.
“We see that market interest rates do not exceed the corridor that the CBA has designated as an interest rate corridor to regulate the growth of inflation and the country's interest rate. To date, this corridor has remained unchanged. The lower rate of the corridor is 7.5 percent, while the upper rate is 10 percent," he added.
Akhundov noted that if the current rate set by the Central Bank of Azerbaijan is maintained, there will be no impact on the banking sector, financial markets, or credit rates of Azerbaijani citizens.
"This is due to the fact that from an economic point of view, given our economic model, this rate has no effect. This rate is aimed exclusively at combating inflation and has a health-improving character. Currently, we are seeing a slowdown in inflationary growth," he said.