State of manat to depend on Azerbaijan's domestic situation - Saxo Bank

Business Materials 18 December 2015 17:40 (UTC +04:00)

Baku, Azerbaijan, Dec. 18

By Anvar Mammadov - Trend:

The sharp rise in the interest rates of the US Federal Reserve System in 2016 is unacceptable for Azerbaijan, which is oriented towards the policy of the Federal Reserve System in connection with the regulation of the exchange rate, John Hardy, the head of Saxo Bank's FX Strategy on the currency market, said.

"The impact of increasing interest rates of the Federal Reserve System on the Azerbaijani manat will primarily depend on the growth of the interest rates and oil prices," he told Trend Dec. 18. "The manat is now under the threat of further devaluation because the oil prices have greatly dropped since the last devaluation. This pressure can be eased if the oil price rises. But the difficult way of the rate hikes in 2016 is likely to be unacceptable for Azerbaijan."

"Azerbaijan must be ready for even more pressure on the national currency in 2016," he said. "Perhaps, this will not be as massive as in late 2014 and early 2015, as oil prices will fall to their lowest level in early 2016."

"If the dollar rises, fall is observed on the market of raw materials," he said. "But if the global economy shows signs of improvement and raw materials can withstand a strong blow, the goods exported by developing markets may significantly increase in price."

"We expect the oil price to reach its minimum in the first half of 2016, but the Fed (Federal Reserve System of the US) growing rate is likely to strengthen the US economy, which will have a positive impact on the demand for raw materials," Hardy said. "In addition, the demand from China is much more important for some goods such as industrial metals."

In general, the US dollar should strengthen further if the pace of the Fed rate hikes exceeds current expectations for 2016, which may happen, if the US economic indicators continue to show quite flexible development, Hardy said.

"If the markets calmly accept the prospect of a further rise in interest rates, the dollar will strengthen," Hardy said, adding that the state of currencies in developing countries will primarily depend on their domestic situation.

Increasing the rates doesn't always mean that the currencies of developing countries will come under risk, but the global volatility is likely to grow during the cycle of rising interest rates of the Federal Reserve, he added.

It will likely put pressure on more vulnerable currencies of developing markets, according to Hardy.

Earlier, the Federal Open Market Committee (FOMC) of the US Federal Reserve System increased the base interest rate from the record low of 0-0.25 percent per annum to 0.25-0.5 percent for the first time since June 29, 2006.

The interest rates in the US can be increased by four times more in 2016, according to the forecasts of the country's officials on the further development of the monetary policy.

The Federal Reserve System expects that the base interest rate can be increased to 1.4 percent by late 2016.

Edited by SI


Follow the author on Twitter: @Anvar_Mammadov