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Azerbaijan to move to free floating national currency exchange rate

Business Materials 9 May 2011 17:47

Azerbaijan, Baku, May 9 / Trend I.Khalilova /

The Central Bank of Azerbaijan (CBA) plans to move to a free floating national currency exchange rate in the long term on the backdrop of its flexible exchange rate policy.

These tasks are laid out in the draft economic development strategy for 2011-2025 prepared by the Economic Development Ministry.

The average annual change of the nominal manat exchange rate is projected at one percent in the document. The rate of the national currency is consolidated by 1.8 percent in 2009 and by 0.6 percent in
2010.

The CBA controls the national currency rate to the avoid excessive consolidation of the manat rate.

The domestic foreign exchange market observes an increase in the dollar supply, which led to a deepening of the manat rate.

However, the Central Bank keeps the situation under control and prevents excessive consolidation as in 2010.

The strengthening of the rate may prevent the development of non-oil exports. However, this is a positive factor in inflation because a strong currency means cheaper imports.

Theretofore, the main challenge faced by the bank is keeping inflationat a stable one-digit level for the long term.

The government aims to keep inflation at a low level and to prevent a sharp change in the national currency rate.

The draft strategy projects the rate of annual change in the consumer prices index at 3 percent.

Under a new monetary policy, it is expected to implement a regulatory framework for stabilizing inflation and the macroeconomy in the first stage in accordance with the the post-crisis requirements. In the second phase, it is expected to apply macro-prudential instruments of the a countercyclical nature to manage risks.

Given the challenges of the post-crisis period, the CBA intends to strengthen its activities in ensuring financial stability in the banking sector this year, the CBA said in its report on 2011.

The CBA seeks to ensure the active role of the financial system in the economic diversification process as its strategic goal in the long term.

Measures on regulation and supervision are aimed at ensuring an optimal balance between stability and growth in 2011.

It is important that the banking sector relied on stable and sustainable growth sources in the post-crisis period. This is a
necessary condition for using financial resources for healthy and long-term economic development.

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