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Reduction in National Bank’s base rate from 17% in February to 13% in July favourable for funding

20 July 2016

 

 

Cost of liquidity. May 2016

20 July 2016

On 11 July, the National Bank cut the base rate to 13% with a corridor of +/-1% as the exchange rate of the national currency gradually stabilised and inflationary expectations reduced. This was the second reduction in both the base rate and its corridor since the beginning of the year.

As a result of the falling oil prices last summer the National Bank decided to set the upper limit of the rate for banks to deposit their funds and in November 2015 it suspended supplies of liquidity to banks to prevent currency speculations. This led to a sharp increase in rates for attracting deposits as banks started looking for other sources of liquidity. At the beginning of 2016 the average rate on corporate deposits approached 30%, while corporate funds deposited for one months were attracted at 31.3%.

The stabilisation of the deposit market is backed up by a reduction in the spread between interest rates on corporate and retail deposits to the minimum (1 percentage point) since August 2015.

The highest pressure from shortages of liquidity was felt by interest rates on short-term corporate deposits the value of which exceeded 5% on deposits opened for less than a month at the beginning of 2014. In the first quarter of 2016 there was also a time lag on long-term corporate and retail deposits that has led to, in particular, an over 100% growth in interests on retail deposits opened for over five years.

In addition, the further stabilisation is expected in the cost of funding for banks and, as a result, a reduction in interest rates on loans to the economy.

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