New instruments in the implementation of monetary policy

For recent years the National Bank of Tajikistan together with the Government of the Republic of Tajikistan and other government authorities, in light of consistent policy of the Leader of the Nation, President of the Republic of Tajikistan, takes necessary measures to introduce new instruments to ensure effective management of structural and financial reforms that gradually strengthen our economic and structural position in the direction of developing independent, self-sufficient banking system.

It should be noted that main objective of the NBT is to maintain the level of inflation within the framework of a stable single-digit indicator. As the analysis shows for the reporting year the changes of price were influenced mainly by non-monetary factors such as supply factors, reduced production and insufficient supply of certain food products and seasonal factors. Along with this, a change in the exchange rate at the beginning of the year as a result of capitalization of troubled banks to a certain extent increased inflationary pressures.

However, despite the negative influence of external factors, as well as exchange and inflation pressures, specific measures are being taken to implement a transparent monetary policy with the aim of stabilizing fluctuation of national currency exchange rate, preserving purchasing power of the national currency and restoring healthy full-fledged activity of banking system and inflation is maintained at a stable level .

In this direction, first of all, monetary instruments were used including the refinancing rate, which was set at 16.0% per annum. At the same time, in order to balance the demand and supply in the exchange market, regulate a volume of liquidity and reduce dollarization, reserve requirement in national currency was set at 3.0% per annum and in foreign currency to 9.0% per annum.

Also for the first 9 months of 2017, 133 securities auctions were conducted by the National Bank of Tajikistan to effectively manage the liquidity of banks, development of financial system and primary securities market and volume of the sale of securities amounted to TJS 6,0 billion, which in comparison with the same period of last year was more for TJS 2.9 billion or 2.0 times.

At the same time, in order to stabilize the situation on the domestic exchange market and minimize exchange rate pressures, all necessary measures of monetary and foreign exchange policy have been taken including direct foreign exchange interventions.

Thanks to implementation of an active anti-inflationary monetary policy, a stability of domestic exchange market and exchange rate as well as an increase in the autumn harvest of vegetables and their supply, the annual inflation rate in September fell to 6.7%. Analyzes and estimates show that by the end of 2017 the level of annual inflation will remain within the one-digit target figure - 7.0%. In 2015-2016 the inflation rate made 5.1% and 6.1%, respectively, and remained generally within the framework of indicators that contribute to economic growth (according to observations, the rise in inflation over the years in some neighboring countries had a pronounced character and amounted to a two-digit number, that is, more than 10 %).
The official exchange rate of the national currency against the US dollar from the beginning of 2017 to September 30 of this year weakened (by 11.7%) and regardless of the forecasts of some economists who predicted an increase of the rate to TJS 15, the exchange rate of the national currency against the US dollar was TJS 8.8. The implementation of these measures has made possible to reduce the difference between the rates by many times, and to return the purchase and sale of cash currency from the black market to the official market. At the same time, there was a halt in the increase in the cash rate of the US dollar and the difference between the official exchange rate and the exchange rate.

During this period, the volume of net international reserves and total foreign reserves increased for 2.4 and 2.2 times, respectively, compared with the beginning of the year, and the stability index of total foreign reserves was brought from 2.6 to 5.6 months of imports coverage, which was not observed before in the economy of the country.

In order to activate and expand monetary policy as well as to create a mechanism of interest-based instruments of monetary policy and increase its efficiency, the NBT implements a new structural reform using modern practice of implementing monetary policy. The statutory acts regulating new permanent monetary instruments expressed in national currency such as overnight credits, intraday loans, loan auctions (7 and 14 days) and overnight deposits have been enacted.

For the first 9 months of 2017, the National Bank of Tajikistan through loans to credit institutions issued TJS 380.5 million of short-term loans to provide liquidity.

In order to turn the NBT refinancing rate into a key interest rate and the main indicator characterizing monetary policy position in the money market, the interest rates of all the above instruments were tied to the refinancing rate. This will allow for the formation and strengthening of transmission mechanism of the refinancing rate with final interest rate.

At the same time, work was started on the use of these tools through the creation of the interbank electronic trading platform Thomson Reuters, the connection and operation of electronic trading system, which will create conditions for transparency and operational efficiency, as well as access of credit institutions to monetary instruments for attracting and providing liquidity by the NBT.

To determine the main directions of monetary and foreign exchange policy for medium-term period, the Strategy of the Monetary and Foreign Exchange Policy of the Republic of Tajikistan for 2016-2020 was adopted, designed to address issues related to expansion of institutional reforms, enhancement of the effectiveness of monetary instruments, development of the money market and other spheres with the purpose of transition to a new regime for implementation of monetary policy - the regime of inflation targeting and achieving a stable price level.

In order to increase an effectiveness of the NBT's activities as a key regulator, strengthen monetary policy and increase confidence to it, a series of reforms are being implemented, such as improving development and implementation of monetary policy, development of new refinancing instruments and mechanism for applying the refinancing rate, efficient management of short-term liquidity of banking system, creation of an electronic interbank system in the national currency, optimization of exchange rate policy, management of international reserves and their diversification, increase of corporate management in credit institutions, adoption of new transparent banking products conforming with modern standards, strengthening and increasing effectiveness of banking supervision, introduction of the Basel Committee (BCBS II) criteria for banking supervision in credit institutions, improvement of risk assessment and management methods, protection of rights and interests of consumers of banking system services, improvement of mechanism of transparency and information, development and application of mathematical and economic models for forecasting of main macroeconomic indicators, improving the work of the NBT’s Monetary Policy Committee, Investment Committee and strengthening of risk management for assessing foreign exchange transactions, increasing the attractiveness of using national currency and de-dollarization of economy, replacing the current interbank payment system with the Modern Automated Interbank System of money transfer and Automated Clearing House, which are already produce effective results.

Press-Division of NBT