BAKU, Azerbaijan, September 18. The Central Bank of Azerbaijan (CBA) decided to keep the refinancing rate unchanged at the level of 7.25 percent, Trend reports.
According to the CBA, the upper and lower limits of the interest rate corridor also remained unchanged at 8.25 percent and 6.25 percent, respectively.
"The decision to maintain the interest rate was made considering the actual and projected inflation levels, which align with the target range of (4±2%), as well as the dynamics of internal and external inflation factors.
Despite the fact that annual inflation has increased since the last meeting, it is still within the target range (4±2%). 12-month inflation was 3.5 percent in August 2024, food inflation - 3 percent, non-food inflation - 1.8 percent, services - 5.6 percent. Annual core inflation was 2.4 percent.
The external inflation background is generally stable. The growth of the nominal effective exchange rate of the manat over this period (2.8 percent in 8 months of 2024) made an additional contribution to the reduction of import inflation.
The current account of the balance of payments had a surplus of $2.6 billion, or 7.5 percent of GDP, in the first 6 months of 2024. The foreign trade balance, the main component of the current account, amounted to $5.5 billion in the first 8 months of 2024. The positive balance was recorded in US dollars. The country's strategic foreign exchange reserves increased by 6.1 percent in 8 months to $72.6 billion," the CBA stated.
The demand for foreign currency has increased due to heightened direct government expenditures, including servicing external state debt, throughout the current year.
Additionally, a reduction in trade credit obligations by businesses operating in the country has been fully supported through currency auctions organized by the Central Bank (CBA). In the remaining part of the year, market interventions by the CBA are not ruled out to support the execution of increased government expenses directly in foreign currency, such as COP29 and other state expenditures.
These operations will be conducted using foreign currency acquired from a purchasing intervention amounting to $4.2 billion carried out by the CBA in the currency market during the previous two years. The anticipated selling-oriented currency interventions will also allow for the sterilization of part of the increased money supply generated from previous years' purchasing interventions.
Monetary policy tools are applied considering the processes occurring in financial markets and changes in the liquidity position of the banking system. The CBA has sharply reduced the volume of sterilization operations since the beginning of the year, taking into account the impact of changes in government account balances on liquidity in the banking system. The volume of banknotes issued by the CBA has decreased by 45.6 percent this year.
Since the last meeting, there have been no substantial changes in the balance of inflation risk. Fluctuations in inflation in partner countries and global commodity prices are considered the main external inflation risks. Monetary conditions in leading economies remain tight. However, the likelihood that central banks in these countries will gradually lower interest rates due to declining global inflationary pressures is increasing.
Internal risk factors that may lead to increased inflation include rising cost factors and excessive growth in aggregate demand resulting from increased budget expenditures and expanded credit investments. Over the past year, the banking system's loan portfolio has grown by 19.5 percent, with a substantial increase in business loans of 18.4 percent.
Overall, the current monetary conditions aim to maintain inflation within the target range and stabilize inflation expectations. The forecast for the end of 2024 and annual inflation within the target range remain unchanged unless current conditions change.
The Central Bank will announce an updated forecast for key macroeconomic indicators at the end of October 2024. Future decisions regarding the parameters of the interest rate corridor will depend on the dynamics of actual and projected inflation, as well as external and internal risk factors.
The decision will take effect on September 19, 2024. Information about the next decision regarding the parameters of the interest rate corridor will be disclosed at the end of October, along with a press conference, as stated by the Central Bank of Azerbaijan.