Modernizing monetary policy the price stability

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Modernizing monetary policy: The price stability mandate of the CBA will be reinforced; Dealing with excess liquidity from the system. The transition to the Inflation Targeting Regime can be ensured as a part of monetary policy regime. So far exchange rate targeting regime acted as a monetary policy anchor. But now due to known reasons money supply targeting regime started to apply. Implementation of IT regime necessitates selection of Interest rate AS monetary polciy anchor.Selection of interest rate as an anchor will allow to ensure price and financial stability. In order to coordinate macroeconomic and financial stability and to ensure effective communication between monetary and fiscal entities Financial Stability Council was established. Public institutions performing various aspects of macroeconomic policy are represented in FSC and fiscal and financial policy is coordinated under the leadership of Prime Minister. Action 1.3.3: Transition to a floating exchange rate regime. In order to achieve implementation of fully floating exchnage rate regime there is a need for further adjustment. Priority can be given to import substitution policy which allows to reduce the share of import in consumption basket. Other condition of this transition is a developed condition of internal financial market, submission of other financial tools allowing hedging and exchange rate risk insurance at the market.
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Floating exchnage rate and financial institutions development are strongly dependent on each other. Financial framework - Financial market stabilization The measures taken by the authorities during 2015, 2016 and 2017, including tightening monetary and fiscal policy, have contributed to macroeconomic stability and reduced volatility in the foreign exchange market, but the bankings system remains fragile . 11 banks licences had been revoked and liqudated in 2016- 2017.Along with restructuring of IBA the government had incurred additional AZN 560 million in cost for replenishment of ADIF to support payout of deposits for 11 banks in liquidation.Sharp dollarization and earlier foreign currency borrowings led to open short currency position of banks. Erosion of banking sector equity and rising NPLs resulted in a rapid contraction of financial intermediation, which had constrained economic recovery and growth of non-oil private sector.
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