The Central Bank of Azerbaijan (CBA) increased the interest rate from 9.5% to 15% today, the CBA said in a message.
The upper limit of the interest rate corridor was increased from 15% to 18%, while the lower limit was increased from 4% to 12%.
“The recent changes in the internal and external factors affecting inflation bring the need to take additional anti-inflationary measures. During 2016, the national currency rate changed in accordance with supply and demand in the foreign currency market and trends in the balance of payments,” the CBA said.
The Central Bank of Azerbaijan will continue measures to ensure macroeconomic and financial stability, including the measures to keep inflation at an acceptable level and enhance confidence in the national currency.
The deputy editor-in-chief on economic issues at the 'Trend' news agency, Ilaha Mammadli, speaking with a correspondent of Vestnik Kavkaza, noted that the main purpose of increasing the refinancing rate by the Central Bank is to form real interest rates. "This will attract deposits in national currency, increase public confidence in the manat deposits, as well as the attractiveness of the deposit auctions," she pointed out.
"It can be expected that the increase in the discount rate would lead to higher interest rates on manat deposits, which is one of the crucial ways to stop the dollarization of Azerbaijan's banking sector, because people still prefer to keep their savings in dollars. I should note that the Deposit Insurance Fund's interest rate on insured deposits is up to 12%, and it is likely that it will increase its maximum rate on guaranteed deposits," Ilaha Mammadli said.
As a result, "the banks will be able to expand their customer base and to increase the term of the deposit storage – and this is another measure that would attract people to keep their deposits in manats," the deputy editor-in-chief of 'Trend' explained.
The expert noted that the increase in the cost of loans due to the increased refinancing rate will also benefit the financial market. "There will be no interest in borrowing if the rates are high. In addition, it would not be profitable for a borrower to convert borrowed funds into dollars if interest rates on manat loans were high," Ilaha Mammadli concluded.
On August 8, the Central Bank has raised the refinancing rate from 7% to 9.5%.
