Tajikistan’s central bank lowered its key interest rate for the first time this year, more than reversing a rate hike in January, to support the country’s economy from damages from the coronavirus pandemic, ensure liquidity in the banking system and achieve stable inflation.
The National Bank of Tajikistan (NBT) cut its refinancing rate by 100 basis points to 11.75 percent, its first cut this year after raising the rate in January by 50 basis points.
NBT was one of only five central banks to raise rates this year but three of these – the Czech Republic, Kazakhstan and now Tajikistan – have more than reversed the earlier cuts and switched to accommodative monetary policy to ease the negative economic impact of the virus.
Inflation in Tajikistan rose to 9.3 percent in March from 7.8 percent in February but NBT said the risks of inflation in the next quarter are now lower.
Just as the spread of COVID-19 has negatively impacted the global economy, Tajikistan’s economy has also been affected from reduced trade and investment, the limitation of cross-border relations, lower income, higher financial risks in financial institutions along with a deprecation of the somoni currency.
Tajikistan’s currency, the Somoni, which replaced the Tajikistani ruble in 2000, has been steadily deprecating since 2014 and on March 30 NBT made what it said was a one-time correction in the official U.S. dollar rate by up to 5.0 percent to ease the pressure in foreign exchange markets.
Today the somoni is trading around 10.25 to the dollar, down just over 5 percent from around 9.70 at the start of the year.
NBT has been steadily lowering its rate since January 2018 in synch with falling inflation but a pickup in inflationary pressures last year forced the central bank – which is moving toward inflation targeting – to pause in its easing and raise the rate in February 2019.
It then lowered the rate a few months later, in May and then November last year.
But once again, inflation began trending upwards in the first quarter and in January this year the central bank raised the rate 50 basis points.
The hike came a few weeks after the International Monetary Fund (IMF) said tighter monetary policy might be needed to mitigate possible second-round effects from a rise in inflation due to base effects and higher food prices.
On April 8 NBT lowered its reserve requirements for financial institutions temporarily by 200 basis points to 1 percent from April 1 to Dec. 31, injecting 241.7 million somoni into the banking system.
The reserve ratio for foreign currencies was lowered by 400 points to 5.0 percent.