03 May 2016, Baku: The Central Bank, carrying on with efforts to maintain macroeconomic stability in line with its mandate, takes critical flexible monetary policy actions to secure price stability, the key monetary policy objective.
The recent trends in the national economy and business activity, the actual inflation rate in the wake of recent changes in the volume and structure of aggregate demand and the behavior of the cyclic and structural factors affecting inflation, as well as stabilization of inflation expectations necessitate lowering the ceiling of the interest rate corridor. It is also conditioned by the recent yield on government securities and trends observable in interest rates in the interbank money market.
On the other hand, the Central Bank is planning to sterilize a certain amount of liquidity to attain implied growth rates of money supply commensurate with the monetary program coordinated with relevant economic authorities as part of the macroeconomic and financial stabilization policy, which requires raising the floor of the interest rate corridor. Sterilization operations with a higher interest rate floor will make savings in the national currency more attractive meanwhile increasing the confidence in Manat and supporting the equilibrium in the FX market.
Given the above and the objectives stemming from the monetary, fiscal and financial stability policies to be implemented in a closely coordinated manner, the Management Board of the Central Bank decided to move the floor of the interest rate corridor on liquidity operations up to 4% from 2%, and move the ceiling down from 17% to 15% leaving the 7% refinancing rate unchanged from 3 May 2016 onward.
To note, the Central Bank conducts liquidity injection and attraction operations with 1 – 7 day maturity at interest rates within the floor and the ceiling of the interest rate corridor. Banks may initiate 1 – 7 day repo/counter repo operations (the Central Bank’s framework tool) in an unlimited manner for the short-term liquidity management.