DUSHANBE, March 9, 2011, Asia-Plus -- The National Bank of Tajikistan (NBT) has raised its refinancing rate by 0.75 percent due to inflation and rise in prices of  the country’s basic imports, the source at Tajik central bank told Asia-Plus today.

He named increasing prices of Tajikistan’s basic imports such as wheat, flour, vegetable oil and oil products as well as rise in prices of seasonal products (vegetables) as the main factors fuelling Tajik inflation.

“Inflation for January 2011 stood at 1.9 percent, which is 1.2 percent higher than for January 2010,” said the source, “The 2010 year-end inflation stood at 11.2 percent, while the 2009 year-end inflation stood at 5.3 percent.”

Proceeding from this Tajik central bank has raised its refinancing rate to 9.0 percent from 8.25 percent set in November 2010, the source added.

We will recall that NBT changed the refinancing rate four times in 2009 and the 8-percent rate set in July 2009 was the lowest refinancing rate over the past six year.  In 2009, the refinancing rate was lowered from 10% on May 12 to 9% in late June.  Before that, the refinancing rate was lowered from 13.5% to 12% on January 28 and to 10 percent on May 12.

In 2008, the central bank changed the refinancing rate three times.  On April, the bank cut it from 16 percent on February 8 to 14.75.  On July 3, the refinancing rate was reduced from 14.75 percent to 14 percent and on November 19, it was reduced to 13.5 percent.

The highest refinancing rate was reported for October 2003 – 18.06 percent and the refinancing rate for December 2003 was 8.22 percent.

Refinancing, which is one of the main instruments of monetary policy, can alter the monthly payments owed on the loan either by changing the loan''s interest rate, or by altering the term to maturity of the loan.  More favorable lending conditions may reduce overall borrowing costs.  Another use of refinancing is to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various indices used to calculate them.  By refinancing an adjustable-rate mortgage into a fixed-rate one, the risk of interest rates increasing dramatically is removed, thus ensuring a steady interest rate over time.  This flexibility comes at a price as lenders typically charge a risk premium for fixed rate loans.