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Interest Rates and Interbank Money Market Analysis
The decline in liquidity in commercial banks has led to a significant increase in the volume of operations to attract funds from the interbank money market. In particular, in January-September this year, the volume of money market operations increased by 1.9 times compared to the respective period of the previous year and totaled 7.1 trillion UZS. At the same time, the volume of transactions increased by 4.5 times in May compared to the same month of the previous year and reached 1.2 trillion UZS.
Under the influence of the refinancing rate, the average interest rates on the interbank money market rose from 7.9-9.2% in January to June, 12% in July and 12.2% in August. At the same time, the average weighted interest rates in commercial banks rose by 12.1 percent in September and 11.75 percent in October due to the improvement in liquidity. At that, interest rates on transactions in the money market made up 11-14.5% in October[ CITATION Cen17 \l 1033 ].
In turn, interest rates of commercial banks increased. In particular, the average weighted interest rate on loans granted by banks in 2017 (without privilege loans) rose from 14.1% in the first half of the year to 16.8% in October.
Source: Central Bank of Uzbekistan (2017)
Dynamics of interest rates on deposits also increased. In January-June 2017, the average weighted interest rate on fixed-term deposits of legal entities and individuals was 11.9%, in July-October this indicator was 12.9, 13.5, 15.2 and 14.2 respectively percent. At the same time, the growth was mainly due to interest rates on time deposits of legal entities. In particular, interest rates on these deposits rose from 6.4 percent in the first half of the year to 9.8 percent in July and August, and up to 10.9 percent in October after rising to 11.4 percent in September[ CITATION Cen17 \l 1033 ]. This dynamics is also influenced by the relationship between the interest rates and the fluctuations in the liquidity of the banking system.
The growth of interest rates on loans and deposits were caused due to the increase in interest rates on short-term resources. The factors contributing to changes in interest rates, as well as the decline in liquidity in banks and the decline in the volume of transactions between commercial banks in the interbank money market.
Foreign Exchange Market Analysis
Since September of the current year, the introduction of market mechanisms of exchange rate formation and liberalization of the domestic foreign exchange market have created an important basis not only for the monetary sector, but also for the positive dynamics in the economy.
In particular, the implementation of these reforms will contribute to solving problems in the sphere of money circulation, involvement of non-bank monetary funds into the banking system and bank circulation, and, most importantly, the effectiveness of monetary policy.
In turn, the formation of a mechanism of effective exchange of foreign exchange resources in the economy, based on market mechanisms, were conducted on the basis of current demand and supply. In September-November 2017, it was estimated that more than $ 730 million worth of currency were sold to commercial banks by the population. Taking into account that this currency has largely been in the informal market, these funds, in turn, serve as additional sources of currency in the currency exchange.
In general, in September-November 2017, the average monthly volume of operations on the currency exchange market increased by almost 1.5 times compared to the average for the first half-year, and the volume of foreign currency sales by exporters increased by more than twice.
Due to the fact that most of the foreign trade operations of the country were conducted in US dollars, the exchange rate of UZS against the US dollar was used as the operating target for determining exchange rates of UZS against other foreign currencies.
During this period, the rate of UZS against the US dollar changed, reflecting the market demand and supply dynamics. In particular, the exchange rate on the foreign exchange markets increased from 8110 UZS/USD to 8054 UZS/USD due to the high demand in the domestic foreign exchange market in September.
In October and November, volumes of supply and demand also have the same dynamics, with the November exchange rate falling to 8,099 sums due to the relatively high demand. The volatility of the UZS exchange rate over the past three months (about 1%) positively affects the formation of fixed holdings at the exchange rate of the economy and the growth of savings and investment in national currency. In this case, the high profitability of UZS savings in terms of foreign currency is reflected in the steady growth of the population's time deposits in national currency. In particular, in September-November the volume of these deposits grew by 13%.
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