Kyrgyz Banks Try to “Warm Up” Economy With Interest Rate Cut

Commercial banks in Kyrgyzstan are expected to reduce interest rates on loans, with the National Bank of Kyrgyzstan (NBKR) lowering the rate from 13% to 11%. However, experts believe that the regulator’s decision will not affect the banking sector.

“We expect that now the market offers on deposits and loans will be revised. But time is needed for this. Commercial banks, financial organizations have to adapt their conditions. If currently the interest rates on loans average more than 15%, then a revision of rates is expected,” Aida Karabayeva, head of the NBKR communications department, told a press conference in Bishkek.

The rate cut is an attempt to warm up Kyrgyzstan’s economy, weaken the national currency and increase export revenues, economists said. Thanks to the weakening of the Russian ruble against the Kyrgyz som, inflation in the country has fallen from 7.3% to 5.2%. This gives domestic producers and exporters room to maneuver.

“At the moment we see that inflation risks are weakening. Previously, the tightening of monetary policy by the National Bank controlled the saving behavior of the population and the banking sector. This helps to ensure that the national currency does not depreciate,” Ainura Mambetkul kyzy, head of the National Bank’s economic department, told The Times of Central Asia.

However, the situation has changed recently, Mambetkul kyzy said. Kyrgyzstan has enough finances to increase lending. This creates conditions for the growth of purchasing power of the population. And as a consequence, economic growth.

Despite the confidence of the financial regulator, commercial banks are in no hurry to reduce interest rates on loans. In any case, they are waiting for the next statement of the financial regulator, in May this year. The fact is that Kyrgyzstan’s banking system operates according to its own, domestic standards — most of the borrowed funds are raised abroad by the second tier banks, or use citizens’ deposit savings.

Maerim Askarbekova, director of Senti financial company, commented: “The practice is that a decrease in the discount rate leads to a general decrease in rates in the whole market. This applies to both loans and deposits. Deposits, on the other hand, directly affect the bond market. The decrease in the discount rate affects the decrease in the price of money on the market. And if the loan that the bank has taken for its operations has foreign roots, the bank will demand lower interest rates. But, in any case, the NBKR interest rate is a benchmark.”

 

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Times of Central Asia