Refinancing rate ineffective monetary policy instrument for Armenia – expert

10.09.2015 16:12
Refinancing rate ineffective monetary policy instrument for Armenia – expert

YEREVAN, September 10. /ARKA/. Refinancing rate is not an effective monetary policy instrument for Armenia, where the national currency's exchange rate determines things, Bagrat Asatryan, a former head of the Central Bank of Armenia, said in an interview with ARKA News Agency.

«In small economies and in countries with underdeveloped financial markets where central banks' participation in the total amount of banks' resources more significant, the refinancing rate is more effective,» he said.

Asatryan is convinced that changes in refinancing rate can have little impact on the problems accumulated in the banking sector.

Besides, outside financial flows impact the banking sector as well given the fact that the sector's growth heavily depends on remittances and loans coming from the outside, and the regulator's policy has a limited potential.

«There is nothing surprising in the recent growth of deposits amid scant financial inflows, since other financial instruments are not available to the population, and housing market is falling,» Asatryan said in his interview.

He pointed out that once immovable property was an alternative to bank deposits, while no this alternative disappeared and people prefer to deposit their savings at banks, but their inflow is shrinking because of the dwindling money transfers.

«If we add to it liabilities of households, small entrepreneurs and individuals to banks, which are served by the same transfers, we will understand that loan repayment problems emerge also here, which means that contraction of remittances strike hard at the quality of bank assets,» Asatryan said.

According to official data, private remittances sent to Armenia mostly by labor migrants in the first seven months of 2015 for non-commercial purposes were 30.3% down from the year earlier totaling about $674.3 million.

The bulk of the money - about 75.9% - came from Russia. Compared to the first seven months of 2014 they plummeted by 35.7% to about $511.9 million, while remittances from Armenia to Russia grew by 2.6% to $114.7 million.

On November 24, when the dollar soared 16.6 percentage points against the Armenian dram to 435 drams per one dollar, the Central Bank of Armenia increased the short-term liquidity cost of the dram, raising the Lombard REPO rate from 8.25% to 10.25%, and later it was raised to 20%. In August 2015, it stood at 10.25%.

In the first half of 2015 Armenian commercial banks appeared to have cut their credit investments by 4.5%, which stood at 2.069 trillion drams in late June, according to ARKA news agency’s financial and economic bulletin "Banks of Armenia" which shows the performance of Armenian banks for the second quarter of 2015.

The drop is blamed primarily on the banks’ move to increase their reserves for potential losses from lending. --0--

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