Fall of USD rate attracts attention to AZN

Politics Materials 20 November 2007 13:05 (UTC +04:00)

Today the USD/AZN rate remains near the historical minimum, rippling in range of AZN 0.85-0.84 to $1. At the beginning of the year the USD/AZN rate in Azerbaijan made up AZN 8.87 to $1 and a couple of years ago - AZN 0.98 to $1.

What is the reason for the USD weakening in relevant to the key currencies, including AZN? Several factors play their role in this regard. They are raise in the oil prices, weak economic indicators in the USA, large deficit of the external trade, decrease of the foreign capital flow into the United States, etc. The key reason for the USD rate drop in Azerbaijan is the flow of huge currency investment incomes into the Country in the period when the USD rate and world oil prices were at their historical maximum.

The foreign and local experts state that the USA's intrusion into Iran will bring to further growth of the oil prices and significant decrease of the USD in the currency reserves of several countries. In its turn, it may cause at least 5-10% drop of the USD in the world market. Generally today nobody has doubts that the epoch of the cheap oil went irretrievably and the recent forecasts at $100 per barrel may become real soon.

As regards to Azerbaijan, the integration of the Country into the world economy is continuing and naturally the sensitivity of the Country's economy to the foreign factors is increasing, i.e. the processes in the world economy affect Azerbaijan as well. Accordingly the drop of the USD rate and raise of the AZN rate is the most actual topic for Azerbaijan.

The National Bank of Azerbaijan (NBA) characterizes the short-term situation with the USD rate as following: the USD/AZN rate at the end of the year will make up AZN 0.85-0.84 to $1. However, this ratio is closely attached to the USD/EUR. It means that each change in the USD/EUR rate will bring to the change in USD/AZN rate. Therefore, it is nonsense to forecast USD/AZN rate without analyzing the situation in the world currency market. In addition, the NBA will not allow AZN to significantly increase because it is unfavorable for the local exporters. It is necessary to mention that NBA's passive participation may bring to significant raise (at least 18-20%) in AZN rate. Factually it has increased by 2.5%.

Over the past three years, the USD decreased by 11% in relevant to EUR. One of the influences on change of the USD/EUR rate in the world markets was the fall of the AZN rate in relevant to the single European currency. Since the beginning of the year, the AZN rate has decreased by 5.6% in relevant to the EUR and it leads to the price increase for the products imported from Europe. The commodities imported from Europe are mainly of investment appointment and therefore, the raise of the EUR rate causes increase of industrial equipment prices.

Today the issue how to keep the savings presents concerns to everybody. If the currency savings of the population do not total huge amounts, according to the recent data, the currency reserves of Azerbaijan exceed $7bln. Generally the currency structure of the reserves is determined based on the currency structure of the foreign trade, external State debts and currency for realizing money-credit policy. In the past three years, the currency reserves of the NBA increased by four times and make up $3.2bln and most part of these currency reserves has been placed in the USD. According to the official forecasts, over the next three years, the currency reserves of the NBA may exceed $14bln. It this case, it is very important to place them in stable and strong currency.

However, the NBA does not hurry in abandoning the dollar part of the currency reserves. "Considering the absence of significant changes in these factors, currently the currency structure of the reserves does not require considerable corrections. At the same time, Azerbaijan is not only country whose currency reserves are mainly formed by the USD. Incurring the similar situation, China, Russia and Japan do not take any measures in this regard," a source stated in the NBA.

On the other hand, it is possible to say that the drop of the USD rate attaches prestigiousness to AZN. Over the past two years, more than half of the expenses of the Government have been financed at the expense of the oil revenues in the foreign currency. However, as the most part of the projects is implemented through the national currency, the spending of the oil revenues led to additional AZN demand. However, the demand for the foreign currency is significantly less than the proposal and is formed mainly at the expense of non-oil sectors of the economy due to the import of several commodities. For instance, part of the budget expenses is spent on acquisition of foreign equipment.

This year the oil revenues that are envisaged to be spent via the consolidated budget total $5bln. The currency demand of the non-oil sector is assessed at $3.4bln. Consequently the currency proposals will again exceed the demand and the balance here may be ensured as a result of increase of AZN rate. Therefore, these processes are on the focus of attention of the NBA which does not allow the AZN rate to increase significantly. Otherwise, the macroeconomic and financial stability in the Country may get broken and the competitive capacity of the exporters in the non-oil sectors may significantly decrease in the short-term outlook.