Baku, Azerbaijan, Dec. 24
By Anvar Mammadov - Trend:
The devaluation of the manat will affect the banking sector of Azerbaijan, Saxo Bank's Head of FX Strategy John Hardy told Trend Dec. 22.
"Of course, the banking system, especially banks, subject to the risks associated with foreign debt, will be affected," he said. "Moreover, the banks will face with an increase in bad loans as the weakening of the currency will affect the creditworthiness of the borrowers."
"In general, Azerbaijan's economy will suffer because of the limited activity in the short term, as the population of the country will adapt to the new conditions," he said.
"Many industrial areas, as well as the consumer sector will face great difficulties, because the purchasing power of consumers will decrease in the country," Hardy said.
The expert said that the transition to a floating exchange rate policy was inevitable, but the decision of the Central Bank of Azerbaijan has become belated.
"This action was inevitable, although it was belated, given the long-term trend of reducing the energy prices, which is the main point of Azerbaijan's export," he said. "Moreover, Russia, one of the key trade partners of Azerbaijan, also faced with great depreciation of the national currency for similar reasons. Perhaps, the decision about waiting was based on the hope that this action could be made when oil prices slightly restore or the Fed will wait a little with the rise of the interest rate. But a combination of the growth of the Fed interest rate and weak oil prices did everything to speed up the process."
The Central Bank of Azerbaijan switched to the floating rate of the national currency (manat) from Dec.21, 2015. As a result, the exchange rate of the US dollar and euro to manat rose by 47.6 percent and 47.9 percent and stood at 1.55 manats and 1.685 manats, respectively on the mentioned day.
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