Central Bank of Azerbaijan to implement new methodology for money market rates

The Central Bank of Azerbaijan (CBA) is preparing to introduce a new methodology to improve transparency and sustainability in the formation of money market interest rates, a CBA representative said at a recent event.

According to the official, the current index methodology experiences disruptions when market activity is low or trading volumes drop sharply. The new approach aims to address these gaps and ensure the index remains stable.

The Azerbaijani rate index currently ranges between 6.25% and 8.25%, covering one percentage point above and below the central bank’s policy rate of 7.25%. In 2023, the index remained within this corridor, indicating effective transmission of monetary policy.

The CBA noted that when the index drops below market rates, it reflects excess liquidity, prompting sterilization operations. Conversely, in the event of a liquidity shortage, injections are carried out.

The main instrument remains one-week repo operations. However, non-central bank factors such as treasury spending and government payments can also affect system liquidity.

N.Tebrizli