Azerbaijan to move to flexible exchange rate in medium term

Azerbaijan, Baku, Dec. 3 / Trend N. Ismayilova /

A low inflation rate in Azerbaijan envisages a transition to a more flexible exchange rate fixing in the medium term, Director General of the Azerbaijani Central Bank (CBA), director of the Center for Research and Development Emin Huseynov said at the Fourth Baku International Banking Conference of the CIS member-states on Thursday.

"The central bank intends to maintain its presence in the foreign exchange market to smooth the exchange rate," Huseynov said.

Azerbaijan's GDP increased by 0.3 percent in January-October 2011 compared to the figure for the corresponding period of 2010. Inflation remained unchanged in October 2011 compared September. The consumer prices on goods and tariffs for services increased by 8.3 percent compared to January-October 2010.

The CBA controls the rate of national currency to avoid excessive exchange rate of manat in directions of cheapening and rising in price. Maintaining the rate at steady state occurs through additional injections into the currency market of the country. The volumes of intervention last year exceeded $1 billion.

The CBA focuses on inflationary processes and the preservation of the country's competitiveness while implementing the CBA exchange rate policy.

Meanwhile, the CBA completely abandoned the use of dual currency (dollar / euro) basket while determining the exchange rate of manat. It has passed to bilateral (manat / dollar) exchange rate targeting from January 10, 2011.

Currency basket has been used in Azerbaijan since March 2008. The CBA explained the refusal from this mechanism as intense volatility in major currencies and the goals of maintaining stability of the currency.

Macroeconomic analysis showed that bilateral targeting of dollar / manat rate in the current terms is most clearly consistent with the CBA objectives, in particular with a view to influence the rate of inflation. This mechanism also allows the CBA to pass to the regime of freely floating exchange rate in the future.

Many countries actively stimulate exports and economic growth by reducing the cost of the national currency. However, the Azerbaijani Central Bank thinks it wrong to connect these measures with the exchange rate policy. One can only make a contribution to these processes through the exchange rate policy. The CBA exchange rate policy in accordance with the structure of the country's economy, aims at increasing exports and accelerating economic growth, the Central Bank said.

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