Since the implementation of
interest rate policy is a public announcement of the projected main refinancing
rate and following adjustment of market levels of numerous interest rates, this
kind of policy is considered to stand among powerful tools utilized by the
monetary authority to achieve goals related to inflation targeting, price
stability, and stimulation of business activity. On the other hand, frequently sustainable
economic growth depends greatly on the level of development of the sector of small- and medium-sized enterprises (SMEs). For
this purpose, in last decades the governments design more flexible
interest rate policy to ensure a wide access to finance for companies,
especially for SMEs. However, in emerging markets the access of SMEs
to funds is somehow limited, because commercial banks are reluctant to provide
credit to this type of enterprises (Baas, T., & Schrooten, M., 2006).

Recent research conducted by
Aguwamba and Ekienabor (2017) in Nigeria examines interest rate policy only in
terms of bank lending, and characterized “the fear that the hike in interest
rates would increase inflation rates and make a negative impact on the rate of
investment” p.62. The idea is supported by evidence from most empirical
studies on banking and SMEs, e.g. Baas & Schrooten (2006), and the OECD’s publication
(2017), which suggest that privileged SME lending in some countries should not
be determined as an entirely beneficial strategy. Conversely, over time a
particular country issuing relatively ‘cheap’ SME loans could face with the
problems resulted in over-heated economy, inflation taming, and insufficient incentives
for business activity. However, previous studies have not scrupulously covered
the issue of the relationship between central bank policies, volatility of the
percentage rate commercial banks charge for loans, and total volume of credits
issued for the SME sector and gains received by SMEs.

In order to
fill the gap in this area, and taking into account the fact that in
Uzbekistan, this rapidly developing sector contributes up to 55 percent of annual
GDP and involves at least 70 percent of the working population (State
Statistics Committee of Uzbekistan, 2017), the objective of this research will
be to investigate the influence of interest rates on demand for credit by SMEs.
Thereby, the findings from proposed study
are expected to be useful for the Central Bank of Uzbekistan during a
decision-making on adjustment of optimal interest rate policy rules. Since the main
refinancing rate serves as an ‘accelerator’ and ‘brakes’
for the economy, this research attempts to provide forward-looking policy
recommendations on how the monetary authority should encourage commercial banks
to grant ‘soft’ loans, and reduce stringent policy in supply of credit to SMEs (Imoughele,
L.E., & Ismaila, M., 2014) and, at the
same time, to avoid problems with liquidity and damaged portfolios. As a
result, the mixture of such a policy could offer more favorable financial
conditions for the SME sector performance and, hence, more stable economic growth for Uzbekistan.

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