Our Analytics 4 february — 09:54

Elman Rustamov's monetary policy faces resistance (Our analysis)

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BY MAMMAD EFENDIYEV

The Central Bank of Azerbaijan (CBA) has reduced the discount rate by 0.5% - from 9.75% to 9.25%. According to the Chairman of the Central Bank, Elman Rustamov, the upper limit of the interest corridor has been lowered from 11.75% to 11.25%, and the lower limit from 7.75% to 7.25%. This is the fifth reduction in the discount rate during the year. Exactly a year ago - in February 2018, the discount rate was reduced from 15% to 13%. Everything went smoothly, and in April there was a follow-up decrease from 13% to 11%. Until the end of last year, the main bank of the country has twice reduced its rate - in June from 11% to 10% and in October from 10% to 9.75%. Only at the August and December meetings the discount rate was left unchanged.

Elman Rustamov

It seems that it is not difficult to understand what is the reason for the almost two-fold reduction in the discount rate within one year. The reduction in the discount rate and interest rate parameters is primarily due to the stabilisation of oil prices on the world market, low inflation and a stable macroeconomic situation inside the country. In August, the Central Bank left this indicator stable, apparently, simply due to the vacation period, but in December, the monetary regulator directly justified its decision with uncertainty in foreign markets (recall the sharp decline in oil prices). And it clearly promised that in the future, the reaction of the monetary policy will depend on the dynamics and sustainability of inflation factors.

In general, the Central Bank regulates many macroeconomic indicators to one degree or another. In particular, a reduction in the discount rate, that is, the credit interest allocated by it to commercial banks, is observed only during the period of economic recovery. So, the country's economy is growing. At the same time, this should cause a certain decrease in loan interest for business and the public. But this, unfortunately, we do not see. Commercial banks are still reluctant to lend at all - only last year credits' volume increased slightly, and it might seem that they do not even think about reducing their interest. It turns out that the Central Bank is taking serious steps to revitalise the economy, its further development, and its efforts, in the end, do not bring tangible results.

Why, then, does the Central Bank continue this policy so persistently, why give cheap loans to commercial banks so that they profit from the growing difference? There is no logical explanation for this. Rather, the logic of the main bank is easy to understand - cheap loans lead to an increase in their volumes, which causes the growth of the economy. But the persistence of commercial banks so far no one really wants to explain. Even the head of the Central Bank, Elman Rustamov, who certainly knows all the tricks of this kitchen, politely brushes aside such questions from journalists.

But no matter how much the country's main banker and the main monetary regulator wave off, the answer to this question still lies on the financial plane. And no matter how Rustamov tried to blame everything on the high risks faced by bankers, even a superficial analysis shows that this is not entirely true. Just credit interest of commercial banks is controlled by another regulator. This is the country's Financial Markets Supervision Chamber. It was this body that received wide powers during the devaluation period, when Rufat Aslanli, who failed miserably, turned all the banking screws so that their managers, and indeed many businessmen from other sectors of the economy, are still afraid to show their own initiative.

Yes, commercial banks are really afraid to risk after a double devaluation of the manat. At the same time, they simply cannot live without loans, on the percentage of which almost all their activities are built. But then, not feeling any support from the Chamber, they seemed to be withdrawn into themselves, avoiding unfamiliar and unreliable customers. Here, for example, for the fourth year, many creditors of banks cannot return the money that has doubled in price in one day. Lenders are not guilty of not being able to repay the increased debt, and banks are not going to meet them. Although both sides want to somehow get out of this situation.

True, today banks are ready to mitigate the conditions of unpaid loans and somehow return at least part of the lost money. At the same time, many creditors do not refuse to return the loans taken at all, they are asking to extend the time limits set by them initially. A lot of such disadvantaged people come to Azeri Daily in the hope of getting at least some support, advice. The heads of the banks with whom we were able to talk were also not against such a step - it's better to get it later than not to get it at all. But the Chamber, which is designed to restore order in the financial markets of the country, is impenetrable in this matter. It simply does not allow banks to extend these deadlines, and those are forced to start long and meaningless litigation.

As a result, a huge mass of debtors severely scolds the banks and the state, which does nothing to solve their problems. Established mainly for the purpose of regulating the banking system by the same state, the Chamber only aggravates this discontent. This problem is nothing for it - it made a mess and silently watched from the outside. Few people know about its existence, its rights and obligations. It receives its dividends precisely from this. It is, however, possible that the opposition of the people and the state organised by this body with or without intent brings it pleasure. Otherwise it is difficult to explain with some reason why the Chamber causes this opposition. Many of the rules invented by Rufat Aslanli's team are beneficial only for the Chamber itself, but they interfere with the banks and, therefore, create difficulties for the population and business. But they are not cancelled even today, you see, they bring too big dividends to the Chamber, which, demanding strict adherence to banking discipline, only hinders the overall development of the country. And, thus, opposes itself to the whole society.

And then the question may arise: do we really need this Chamber? Many experts believe that today it is not needed. The structure has contributed to the implementation of its main task - today the order in the financial markets has been restored. There is no new threat for the devaluation of the manat, the economy has risen to its feet, inflation has been reduced to the desired level, the dynamics of the other macroeconomic indicators also cause satisfaction. Moreover, President Ilham Aliyev calls for reducing all overlapping state structures to ensure greater flexibility and efficiency of the economy. And the Azerbaijani financial market today does not need two regulators - financial and monetary. Especially so, when the first one performs the functions not of a regulator, but of an overseer, while observing not state interests, but its own.

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