Central Bank expects transition to improved monetary system in Azerbaijan
Azerbaijan, Baku, June 16 / corr Trend I.Khalilova /
The Central Bank of Azerbaijan (CBA) plans a transition to a more flexible monetary management system in the next 10 years, CBA Director General Khagani Abdullayev told Trend.
"Many central banks transition to a flexible currency rate in order to establish a more flexible monetary management system, though the transition process may take at least 10-15 years," Abdullayev said. "This is common in world countries, particularly those which possess tremendous export and currency revenues."
According to Abdullayev, flexible monetary management ensures absorbing foreign shocks, i.e. a flexible exchange rate prevents the overheating of the economy when it is faced with a great volume of export and inflow of investments in the country.
"However, the transition to a flexible exchange rate is possible in the long-term prospective," Abdullayev stressed. "Our key objective today is technical and macroeconomic estimation of long-term prospects and conditions it which transition is possible, as there is a system of structural, institutional, and macroeconomic factors. Generally, a possible transition is estimated to take place within 10-15 years."
According to Abdullayev, one of the terms of transition is creating a very strong capital market and proving strong integration of the country into international financial markets.
"A flexible currency rate is applied when the country receives tremendous financial flows," Abdullayev noted. "Our key objective is to be prepared technically and intellectually and to have a concept, because the process of transition in itself is very difficult in terms of both macroeconomics and structure."
The Central Bank of Azerbaijan appealed to the International Monetary Fund (IMF) for technical assistance to improve the structure of the monetary system and rate policy in Azerbaijan. Technical assistance will be rendered for transition to a more flexible mode of the national currency exchange.
The draft long term strategy of economic development of Azerbaijan for 2011-2025, developed by the Ministry of Economic Development, includes plans on transition to a free floating rate of national currency within a flexible rate policy. In this case, the average annual change of the nominal manat rate is predicted at 1 percent.
The national currency rose by 1.8 percent as of 2009, 0.6 percent in 2010, and by 1.2 percent since the beginning of 2011.
In the first quarter of 2010, the nominal efficiency rate (NER) in the non-oil sector dropped by 2.2 percent in the total trade turnover. Inflation in partner-countries assisted an increase in the real efficiency rate (RER) by 1.5 percent. RER in the non-oil sector dropped by 0.8 percent. During this period NER and RER rose in price by 1.5 percent and 1.7 percent, respectively.