MAY 10 2014 (The Conway Bulletin) – Azerbaijan cuts its key interest rate to a three year low last month because of a drop in inflation, Elman Rustamov, head of the Central Bank, said.
The Azerbaijani economy is generally on the up. There are some weak points, such as loose controls over consumer borrowing, but the Central Bank is managing to maintain growth rates as well as keeping inflation under control.
So confident has the Central Bank been feeling that on April 30 it cut its key interest rate to 4.25% from 4.75%. This was the first rate cut for 14 months and marks the lowest level since 2011.
Mr Rustamov explained the thinking behind the rate cut.
“Inflation in the country is at its lowest level. By the outcome of the first quarter, the inflation in the country stands at 2%,” he said.
“Interest rates need to be reduced. They should be reduced to such a level that they will be suitable both for the population and for businesses.”
Of course slowing inflation can also mask other problems. There may have been a slowdown in consumer demand and the economy may need a nudge.
But relaxing interest rates also presents a risk to Azerbaijan’s economy. Recent reports from international economists have all highlighted the threat from consumer borrowing. Moody’s said that consumer loans would grow by 20% this year, compared to 25% last year.
Cutting interest rates is hardly going to curb this trend.
ENDS
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(News report from Issue No. 184, published on May 14 2014)