EIJMRMS ISSN: 2750-8587
VOLUME04 ISSUE06
59
SIGNIFICANCE OF MONETARY INSTRUMENTS IN REGULATING THE ACTIVITIES OF
BANKS
Kurbonbekova Mohichekhra Turobjonovna
Dsc., Associate Professor At The Tashkent State University Of Economics, Tashkent, Uzbekistan
AB O U T ART I CL E
Key words:
Monetary policy, inflation, money
market, money supply, refinancing policy, reserve
requirement, credit, credit percentage, liquidity,
credit portfolio.
Received:
06.06.2024
Accepted
: 11.06.2024
Published
: 16.06.2024
Abstract:
In this article, the impact of monetary
policy instruments on the activity of commercial
banks, in particular on bank liquidity, loan
percentage and loan portfolio, is analyzed on the
basis of econometric models. He used two
different models in the econometric analysis
assessing the impact of monetary policy
instruments on commercial banks. The first model
is a least square model, while the second is a
structural vector autoregression model. In
studying the impact of the monetary policy of the
Central Bank on the activity of commercial banks,
it analyzed two different types of banks.
INTRODUCTION
The central bank's monetary policy is spread throughout the economy through commercial banks. It is
the health of commercial banks, their liquidity and high crediting potential that opens wide
opportunities for the Central Bank. Through Central Bank instruments, it affects the liquidity of
commercial banks and subsequently the lending capacity and interest policies of banks.
With the emergence of interest rate policy by central banks, it was not possible to influence economic
growth through interest rate policy. namely, D. M. Keynes was one of the first to analyze the impact of
interest policy of central banks on economic events. In his opinion, Makrazy Bank encourages legal
entities to increase their investment costs by lowering the interest rate. An increase in investment costs
will lead to an increase in the gross domestic product. J. Taylor is one of the scientists who made a great
contribution to the study of the impact of shocks on the economy from the central bank's refinancing
policy. Until then, economists studied the interest rate by dividing it into nominal and real interest rates
VOLUME04 ISSUE06
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Pages: 59-73
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when analyzing the impact of interest policy on economic growth. According to J. Taylor, real interest
rates cannot always explain the impact on economic processes.
The main parameters of the monetary policy, including the volumes, limits and regulations of the
Central Bank's operations on providing and withdrawing liquidity, the interest rates of the Central
Bank's monetary operations, including the refinancing rate and (or) the base rate, the amounts of
mandatory reserve requirements (regulations of mandatory reserves, coefficient of averaging of
mandatory reserves) and the list of types of security for loans are within the competence of the Central
Bank.
We have left out the place of open market policy in the analysis. The reason for this is that if our analysis
was taken from January 2017, the current state of the open market policy started from December 2018.
So the analysis times will not coincide. Secondly, we took the analysis in the cross-section of months,
but the fact that the sale of government securities by the Central Bank through the open market policy
was not carried out every month makes the impact of this indicator on the result unreliable. therefore,
in the analysis, we will analyze the combined effect of Central Bank refinancing and mandatory reserve
instruments on the liquidity and lending capacity of commercial banks.
LITERATURE REVIEW
Refinancing policy is one of the main instruments in the arsenal of central banks. Central banks are
widely used to influence the financial market, the volume of foreign trade operations, and the expected
changes in the gross domestic product. Based on this goal, scientists and scientific schools of developed
and developing countries have conducted extensive research on the application of the refinancing
instrument and measuring its effectiveness. In particular, the scientific and practical aspects of the
impact of the monetary policy refinancing instrument of the Central Bank on the economy are discussed
by foreign economists J. M. Keynes, Irving Fisher, Wicksell Knut, M. Friedman, J. Tobin, R. Dornbusch, J.
E. Stiglitz, B. Bernanke, M. Gertler, A.S. Blinder, Frederic S. Mishkin, V. Ramey, A.K. Kashyap, J.C. Stein,
J.B. Taylor, Peter N. Ireland, including Russian economists S.R. Moiseev, E.A. Leonteva, S.M.
Drobyshevsky, P .V.Trunin, D.I.Kondratov, S.A.Andryushin, I.S.Ivanchenko, I.L.Kavitskaya and others
have been thoroughly studied and analyzed in scientific works. Uzbek economists T. Koraliev, Sh.
Abdullaeva, O. Namozov, T. Bobokulov, N. Jumaev, F. Dodiev, A. Absalamov and others Central Bank
carried out scientific research on the impact of currency policy and central bank monetary policy
instruments on the economy.
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According to Frederic Mishkin, the influence of central bank refinancing on economic growth has not
escaped the attention of scientists in the last 50 years. He believes that by reducing the money supply,
the central bank will increase the real interest rate, making it more expensive for businesses to expand
production and reduce their investment costs. A decrease in investment spending leads to a decrease
in aggregate demand and, as a result, a decrease in aggregate output. According to him, the central bank
reduces the real interest rate by reducing the money supply or by slowing down the growth of the
money supply, and this reduces not only the investment costs of enterprises, but also the credit
consumption of the population. Also, an increase in the real interest rate through the central bank's
tight monetary policy will further exacerbate the expected decline in aggregate demand not only
through the interest rate policy, but also through the credit channel.
Arlene Wong studied the gerogenous effects of refinancing policies on consumer consumption, which
is a large part of US GDP, and mainly on the structure of the mortgage market. According to the results
of the analysis, changes in the refinancing rate have a high impact on re-borrowers, as well as on the
decisions of young families to take out mortgage loans for the first time. At the same time, it was found
that the effect of refinancing policy on floating rate mortgages is lower than on fixed rate mortgages.
But it is also proven that the overall effect of the refinancing rate on the population consumption in
floating rates is high.
A. Auclert studied the distribution of central banks' monetary policy decisions to gross consumption in
the Italian and US economies. The scientist analyzed the influence of three channels of monetary policy,
namely, the income heterogeneity channel from income inequality, the Fisher channel from unexpected
inflation, and the interest rate channels on aggregate expenditure. According to the results of the
analysis, all three channels can increase the impact of monetary policy on economic growth. If the assets
have long durations but provide a counterfactual rate of inflation indexation, the standard and
imperfect market model can provide empirical quantities. Economists such as J. Cloyne, C. Ferreira, M.
Froemel, and P. Surico have determined the impact of changes in the main interest rate policy in the
monetary policy of the US and UK economies on the investment costs of enterprises. They divided the
firms into two categories: young firms with low dividend payouts and long-established firms with high
dividend payouts. According to the results of the analysis, young firms and firms that pay low dividends
did not reduce their investment costs in order to expand production in the face of reductions in
monetary policy. On the other hand, firms that have been operating for many years and pay large
dividends are considered to be very sensitive to a contraction in monetary policy. That is, as a result of
reductions in monetary policy, the increase in interest rates makes the source of external financing
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more expensive for the firms of the second category, on the contrary, the sources of external financing
become cheaper for the firms of the first category.
Ṣ
. Kalemli-Özcan analyzed the impact of changes in the monetary policy of developed countries,
especially the USA, on the economy of developing countries. He also analyzed the role of interest policy
in order to mitigate the negative impact of changes in the monetary policy of large countries on the
economy of developing countries. Changes in US monetary policy change domestic credit patterns in
other countries through global investors' risk perceptions. Capital inflows and outflows in developing
countries have a high impact on fluctuations in global investors' risk perception, and this has a direct
impact on domestic credit expansion. According to the results of the analysis, the interest policy of
central banks is ineffective in order to mitigate such external negative impact in developing countries.
Because in developing countries, the transmission of the interest rate of the central banks to the short-
term market interest rates is imperfect. The disconnect between the central bank interest rate and
short-term market interest rates is explained by changes in risk perception. According to this
economist, currency policy aimed at mitigating the external negative impact, that is, the policy aimed at
changing the exchange rate, may not give its result. Economists such as J. Cloyne, C. Ferreira, M. Froemel,
and P. Surico have determined the impact of changes in the main interest rate policy in the monetary
policy of the US and UK economies on the investment costs of enterprises. They divided the firms into
two categories: young firms with low dividend payouts and long-established firms with high dividend
payouts. According to the results of the analysis, young firms and firms that pay low dividends did not
reduce their investment costs in order to expand production in the face of reductions in monetary
policy. On the other hand, firms that have been operating for many years and pay large dividends are
considered to be very sensitive to a contraction in monetary policy. That is, as a result of reductions in
monetary policy, the increase in interest rates makes the source of external financing more expensive
for the firms of the second category, on the contrary, the sources of external financing become cheaper
for the firms of the first category.
Ṣ
. Kalemli-Özcan analyzed the impact of changes in the monetary policy of developed countries,
especially the USA, on the economy of developing countries. He also analyzed the role of interest policy
in order to mitigate the negative impact of changes in the monetary policy of large countries on the
economy of developing countries. Changes in US monetary policy change domestic credit patterns in
other countries through global investors' risk perceptions. Capital inflows and outflows in developing
countries have a high impact on fluctuations in global investors' risk perception, and this has a direct
impact on domestic credit expansion. According to the results of the analysis, the interest policy of
EUROPEAN INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH
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63
central banks is ineffective in order to mitigate such external negative impact in developing countries.
Because in developing countries, the transmission of the interest rate of the central banks to the short-
term market interest rates is imperfect. The disconnect between the central bank interest rate and
short-term market interest rates is explained by changes in risk perception. According to this
economist, currency policy aimed at mitigating the external negative impact, that is, the policy aimed at
changing the exchange rate, may not give its result.
METHODOLOGY
We use two different models in the econometric analysis that evaluates the impact of monetary policy
instruments on the liquidity and lending capacity of commercial banks. The first model is a least square
model, while the second is a structural vector autoregression model. In studying the impact of the
monetary policy of the Central Bank on the activity of commercial banks, we analyzed two different
categories of banks. Large banks, namely "Uzmilliybank" JSC and "Uzsanoatkurilishbank" ADB, were
taken as banks of the first category, while banks of the second category were small banks, in which
"Turonbank" ADB was taken.
In this regard, the models include changes in the Central Bank refinancing interest rate (
〖
LnINR
〗
_t),
changes in the Central Bank's required reserve ratio (
〖
LnRR)
〗
_t), the change in the rate of inflation
in the economy (
〖
LnCPI
〗
_t), the change in the interest rate in the money market (
〖
LnMMR
〗
_t), the
change in the average interest rate of short-term loans of commercial banks (
〖
LnLoanRate
〗
_t) were
obtained. Statistical data of the selected indicators for the period 2017M1-2022M10 were obtained in
the cross-section of months and growth. All data are natural logarithmized because the analyzed
statistical data are of different dimensions.
∆𝑁𝐵𝑈𝐿𝑜𝑎𝑛
𝑡
= 𝛼
1
+ ∑ 𝛽
𝑖
∆𝑁𝐵𝑈𝐿𝑜𝑎𝑛
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝛾
𝑖
𝐼𝑁𝑅
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝛿
𝑖
𝑅𝑅
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜃
𝑖
𝐶𝑃𝐼
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜇
𝑖
𝑀𝑀𝑅
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜇
𝑖
∆
𝐿𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜇
𝑖
𝑆𝑇𝐿𝑅
𝑡−𝑖
𝑘
𝑖=1
+ 𝜀
𝑡
∆𝑃𝑆𝐵𝐿𝑜𝑎𝑛
𝑡
= 𝛼
1
+ ∑ 𝛽
𝑖
∆𝑃𝑆𝐵𝐿𝑜𝑎𝑛
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝛾
𝑖
𝐼𝑁𝑅
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝛿
𝑖
𝑅𝑅
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜃
𝑖
𝐶𝑃𝐼
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜇
𝑖
𝑀𝑀𝑅
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜇
𝑖
∆
𝐿𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜇
𝑖
𝑆𝑇𝐿𝑅
𝑡−𝑖
𝑘
𝑖=1
+ 𝜀
𝑡
∆𝑇𝑢𝑟𝐵𝐿𝑜𝑎𝑛
𝑡
= 𝛼
1
+ ∑ 𝛽
𝑖
∆𝑇𝑢𝑟𝐵𝑜𝑎𝑛
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝛾
𝑖
𝐼𝑁𝑅
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝛿
𝑖
𝑅𝑅
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜃
𝑖
𝐶𝑃𝐼
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜇
𝑖
𝑀𝑀𝑅
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜇
𝑖
∆
𝐿𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦
𝑡−𝑖
𝑘
𝑖=1
+ ∑ 𝜇
𝑖
𝑆𝑇𝐿𝑅
𝑡−𝑖
𝑘
𝑖=1
+ 𝜀
𝑡
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In addition to the structural vector autoregression (SVAR) model, the least square model, induction,
deduction, and synthesis methods were used in the scientific research. In the analysis of the impact of
monetary and credit policy instruments of the Central Bank of Uzbekistan on market interest rates and
the entire economy, the data of the Central Bank of the Republic of Uzbekistan and the State Statistics
Committee were used.
ANALYSIS AND RESULTS
We used two different models in the econometric analysis evaluating the impact of monetary policy
instruments on the liquidity and lending capacity of commercial banks. The first model is a least square
model, while the second is a structural vector autoregression model.
At the same time, the impact of the monetary policy of the Central Bank on the activity of commercial
banks is different. In particular, large banks are able to respond to monetary policy decisions, while
small banks are more responsive to monetary policy decisions. We can see this situation in both
developed and developing countries. We can see the effect of monetary policy on the liquidity, capital
adequacy and lending capacity of commercial banks from the scientific and theoretical works of
scientists.
Therefore, in studying the impact of the monetary policy of the Central Bank on the activity of
commercial banks, we analyzed two different categories of banks. Large banks, namely "Uzmilliybank"
JSC and "Uzsanoatkurilishbank" ADB, were taken as banks of the first category, while banks of the
second category were small banks, in which "Turonbank" ADB was taken.
In this regard, in the least square model, as endogenous factors affecting commercial banks' liquidity (
〖
LnLiquidity
〗
_t) and the volume of loans (
〖
LnLoan
〗
_t), changes in the refinancing interest rate of
the Central Bank (
〖
LnINR
〗
_t), changes in the required reserve ratio of the Central Bank (
〖
LnRR
〗
_t), the change in the rate of inflation in the economy (
〖
LnCPI
〗
_t), the change in the interest rate in
the money market (
〖
LnMMR
〗
_t), the change in the average interest rate of short-term loans of
commercial banks (
〖
LnLoanRate
〗
_t) were obtained. Statistical data of the selected indicators for the
period 2017M1-2022M10 were obtained in the cross-section of months and growth. All data were
natural logarithmized because the statistical data under analysis varied in size. As a result, the data is
aligned and comes to the same measurement unit.
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At the initial stage of the econometric analysis, we performed a number of statistical calculations. These
are the descriptive statistics of the selected data - here, the average indicators, maximum and minimum
indicators, deviation from the average (standard deviation) of the data were analyzed. Similarly, we
also analyzed the normal distribution of the indicators selected in the scientific work.
0
100
200
300
400
4.610
4.612
4.614
4.616
4.618
4.620
4.622
4.624
D
e
n
s
it
y
LnINR
0
25
50
75
100
125
150
4.600
4.604
4.608
4.612
4.616
4.620
4.624
D
e
n
s
it
y
LnRR
0
20
40
60
80
4.58
4.59
4.60
4.61
4.62
4.63
4.64
4.65
4.66
D
e
n
s
it
y
LnCPI
0
50
100
150
200
250
300
4.610
4.612
4.614
4.616
4.618
4.620
4.622
D
e
n
s
it
y
LnMMR
0
50
100
150
200
250
4.614 4.616 4.618 4.620 4.622 4.624 4.626 4.628 4.630
D
e
n
s
it
y
LnLoanRate
0
100
200
300
400
4.601
4.603
4.605
4.607
4.609
D
e
n
s
it
y
LnGRLiq uidity
0
400
800
1,200
1,600
2,000
4.598 4.600 4.602 4.604 4.606 4.608 4.610 4.612 4.614
D
e
n
s
it
y
LnGRNBULoan
0
400
800
1,200
1,600
2,000
4.596
4.600
4.604
4.608
4.612
D
e
n
s
it
y
LnGRPSBLoan
0
250
500
750
1,000
1,250
1,500
4.600
4.602
4.604
4.606
4.608
4.610
Kernel
Normal
D
e
n
s
it
y
LnGR TuronbankLoan
Figure 1. Normal distribution of selected indicators
The Jacques Bera coefficient was used to test the normal distribution of the data. The analysis shows
that all the selected indicators have a normal distribution, except the interest rates of short-term loans
with the Central Bank compulsory reserve interest rate. Because it was found that the calculated
Jacques-Bera coefficient for all the selected indicators is reliable and their probability is less than 0.05.
70 observations were made using selected indicators. Below we analyze descriptive statistics of ten
selected indicators.
Table 1.
Descriptive statistics of indicators
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INR
RR
CPI
MMR
NBULOAN
PSBLOAN
TURONB.LOAN
Mean
4.6171
4.6111
4.6156
4.6164
4.6053
4.6053
4.6055
Median
4.6167
4.6084
4.6161
4.6168
4.6052
4.6052
4.6054
Maximum
4.6192
4.6175
4.6453
4.6201
4.6115
4.6121
4.6098
Minimum
4.6126
4.6084
4.6001
4.6117
4.6029
4.6016
4.6021
Std. Dev.
0.0014
0.0041
0.0078
0.0018
0.0009
0.0011
0.0007
Skewness
-1.7386
0.8787
0.5553
-0.6369
3.9589
3.4215
1.4784
Kurtosis
6.5102
1.7800
5.0692
3.2902
28.131
23.055
20.310
Jarque-Bera
71.204
13.349
16.087
4.9794
2024.95
1309.76
899.44
Probability
0.0000
0.0012
0.0003
0.0829
0.0000
0.0000
0.0000
Sum
323.20
322.78
323.09
323.15
322.37
322.37
322.38
Sum Sq. Dev.
0.0001
0.0011
0.0042
0.0002
6.45E-05
9.86E-05
4.11E-05
Observations
70
70
70
70
70
70
70
According to the monitoring results, the average indicator of the volume of loans of "Uzmilliybank" JSC
in natural logarithm is equal to 4.6053, and this indicator was equal to the maximum of 4.6115 and the
minimum of 4.6029 during the observed period. The standard deviation of this indicator was equal to
0.0009. Also, the average indicator of the volume of loans of "Uzsanoatqurilishbank" ADB in the natural
logarithm state is equal to 4.6053, and this indicator was equal to the maximum of 4.6121 and the
minimum of 4.6016 during the considered period. The standard deviation of this indicator was equal to
0.0011. The average indicator of the volume of "Turonbank" ATB loans in the natural logarithm state is
4.6055, and this indicator was the maximum at 4.6098 and the minimum at 4.6021 during the
considered period. The degree of deviation from the average of this indicator was equal to 0.0007. It
was determined that the standard deviation of the volume of Uzsanoatkurilishbank's ATB loans is
greater than the indicators of other commercial banks. Below, the correlation between liquidity, lending
potential and interest policies of selected commercial banks with endogenous indicators is analyzed.
Table 2
Correlation matrix between selected indicators
INR
RR
CPI
MMR
LOANRATE
LIQUIDITY
INR
1
RR
-0.5810
1
CPI
0.01046
0.1335
1
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MMR
0.7965
-0.6669
0.0534
1
LOANRATE
0.8082
-0.7614
-0.1069
0.7916
1
LIQUIDITY
0.1400
-0.0943
-0.0603
0.2142
0.0478
1
NBULOAN
-0.0772
0.2074
-0.0267
-0.1787
-0.2281
0.1114
PSBLOAN
-0.0254
0.1440
-0.0595
-0.1159
-0.1365
0.0519
TURONB.LOAN
0.0256
0.1620
0.01305
-0.0067
-0.01842
0.0762
The correlation of the average interest rate of commercial banks' loans with the Central Bank
refinancing rate and the interest rate in the money market is 0.80 and 0.79, respectively, which indicates
that there is a logical and strong connection between them. At the same time, it can be seen that the
Central Bank mandatory reserve ratio has no effect on the percentage of short-term loans of commercial
banks.
The correlation of the level of liquidity of commercial banks with the percentage of refinancing, the
interest rate in the money market and the percentage of short-term loans is 0.14, respectively; 0.21 and
0.11 respectively. With this, we can say that the increase in interest rates increases the income of
commercial banks, which in turn improves their liquidity. At the same time, the correlation of -0.09
between the mandatory reserve ratio and the banks' liquidity indicates that there is a logical, albeit
weak, relationship between them.
If we look at the relationship between the volume of loans of the selected banks and monetary policy
instruments, then the correlation between the refinancing percentage and the change in the volume of
loans of "Uzmilliybank" JSC and "Uzsanoatkurilishbank" ADB is equal to -0.08 and -0.03, respectively.
These banks have the main interest rate. It indicates that the volume of loans did not increase in
response to the increase and the correlation between these indicators is very weak.
On the contrary, the change in the volume of "Turonbank" ADB loans is highly sensitive to the
refinancing rate. That is, if the correlation between these two indicators is 0.03, it indicates that the
main interest rate of the Central Bank has an effect, albeit weak, on the volume of small bank loans.
Table 3
Parameters of the factors affecting the liquidity of Uzmilliybank JSC calculated in the least
square model
Dependent Variable: NBU_LIQUIDITY
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Method: Least Squares
Sample (adjusted): 2017M01 2022M10
Variable
Coefficient
Std. Error
t-Statistic
Prob.
INR
0.067196
0.182789
0.367616
0.7144
RR
-0.019138
0.053786
-0.355820
0.7232
CPI
-0.017920
0.018423
-0.972667
0.3344
MMR
0.290230
0.139643
2.078372
0.0418
LOANRATE
-0.199450
0.124443
-1.602744
0.1140
NBULOAN
0.138825
0.151089
0.918827
0.3617
C
3.408799
0.978993
3.481945
0.0009
R-squared
0.118160 Mean dependent var
4.605335
Adjusted R-squared
0.034175 S.D. dependent var
0.001173
S.E. of regression
0.001153 Akaike info criterion
-10.59818
Sum squared resid
8.38E-05 Schwarz criterion
-10.37334
Log likelihood
377.9365 Hannan-Quinn criter.
-10.50887
F-statistic
1.406922 Durbin-Watson stat
2.292969
Prob(F-statistic)
0.226039
We conduct our econometric analysis using a least squares model. First, we study the impact of
monetary policy decisions on the liquidity of "Uzmilliybank" JSC.
According to the results of the analysis, when checking with a probability of 5%, only the interest rate
in the money market has an effect on the liquidity of this bank. In particular, a one percent increase in
the interest rate in the money market increases the liquidity of "Uzmilliybank" JSC by 0.14 percent.
Through this model, the remaining indicators with a probability of 5%, in particular, the influence of
monetary policy decisions on the liquidity of "Uzmilliybank" JSC was not observed.
Using the least square model, we study the impact of monetary policy decisions on the liquidity of
Uzsanoatkurilishbank ADB.According to the results of the analysis, when checking with a probability of
5%, only the interest rate in the money market has an effect on the liquidity of this bank. In particular,
a one percent increase in the interest rate in the money market increases the liquidity of
Uzsanoatkurilishbank ADB by 0.14 percent. Through this model, the remaining indicators with a
probability of 5%, in particular, the influence of monetary policy decisions on the liquidity of
"Uzmilliybank" JSC was not observed.
Using the least square method, we analyze the impact of monetary policy decisions on changes in the
volume of Uzsanoatkurilishbank ADB loans. According to the results of the analysis, we can see that
monetary policy decisions have no effect on the volume of Uzsanoatkurilishbank ADB loans.
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In small banks, the impulse of the interest rate on loans to the level of inflation calculated from
macroeconomic indicators was also strong. In particular, the increase in the level of inflation in the
economy has been affecting the increase in the interest rate on "Turonbank" ADB loans for two months.
Autocorrelation of indicators has always been strong in the economy of Uzbekistan. In this case, the
autocorrelation of the percentage of "Turonbank" ATB loans is also strong. In particular, the increase in
the percentage of loans by "Turonbank" ATB is the reason for the decrease of these percentages in the
following months. This process continues for a long time.
-.0004
-.0002
.0000
.0002
.0004
1
2
3
4
5
6
7
8
9
10
Res pons e of LNGRTURONBA NKLOA N to LNINR
-.0004
-.0002
.0000
.0002
.0004
1
2
3
4
5
6
7
8
9
10
Res pons e of LNGRTURONBA NKLOA N to LNRR
-.0004
-.0002
.0000
.0002
.0004
1
2
3
4
5
6
7
8
9
10
Res pons e of LNGRTURONBA NKLOA N to LNCPI
-.0004
-.0002
.0000
.0002
.0004
1
2
3
4
5
6
7
8
9
10
Res pons e of LNGRTURONBA NKLOA N to LNMMR
-.0004
-.0002
.0000
.0002
.0004
1
2
3
4
5
6
7
8
9
10
Res pons e of LNGRTURONBA NKLOA N to LNGRLIQUIDITY
-.0004
-.0002
.0000
.0002
.0004
1
2
3
4
5
6
7
8
9
10
Res pons e of LNGRTURONBA NKLOA N to LNLOA NRA TE
Response to Cholesky One S.D. (d.f. adjusted) Innovations
± 2 S.E.
Figure 2. Impulse reaction of the volume of "Turonbank" ADB loans to monetary decisions
The impulse of the change in the volume of "Turonbank" ADB loans to the refinancing rate of the Central
Bank and the change in the reserve requirement ratio is not noticeable. But the impact of this bank's
loan portfolio on liquidity was significant. In particular, the increase in liquidity by the bank affects the
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decrease in the volume of loans for two months. The impulse of the volume of "Turonbank" ADB loans
to the level of inflation and the interest rate in the money market was also imperceptible.
CONCLUSION
Analyzing the impact of the monetary policy instruments of the Central Bank of the Republic of
Uzbekistan on the lending potential of small banks, we can see that a 1% increase in the refinancing
interest rate leads to an increase in the percentage of short-term loans of Turonbank ADB selected as a
small bank by 0.28%.
Also, the increase of the mandatory reserve percentage by the Central Bank by 1% reduces the liquidity
of "Turonbank" ADB by -0.31%. That is, the increase in the mandatory reserve percentage by the Central
Bank leads to a decrease in the resources of small banks and a decrease in their excess resources. The
increase in the required reserve ratio of the Central Bank also increases the loan portfolio of this bank.
But this effect is imperceptible.
The efforts of small banks to increase their liquidity are different from those of large banks. There will
be an opportunity to increase the liquidity of large banks without reducing the volume of loans. But
small banks achieve this by reducing the size of their loans. Our econometric analysis also proves this
hypothesis. In particular, increasing the liquidity of "Turonbank" by ADB by 1% decreases the volume
of loans by -0.17%.
We can see from our previous analysis that the change in the interest rate in the money market has a
high impact on large banks. However, the change in the money market interest rate does not lead to a
change in the volume of loans to small banks, in particular to "Turonbank" ATB.
As a result of empirical analysis, it is determined that small banks, unlike large banks, are more sensitive
to macroeconomic indicators, more precisely, this affects the percentage of loans. In particular, a 1%
increase in the level of inflation in the economy increases the percentage of short-term loans of
"Turonbank" ADB by 2.9%.
Autocorrelation of the volume of "Turonbank" ATB loans is becoming significant. In particular, a 1%
increase in the volume of loans of this bank in the previous month reduces the volume of loans in the
following month by -0.43%. This means that small banks do not have the opportunity to find enough
resources to continuously increase their loans.
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