CBA: Azerbaijan to keep floating exchange rate in 2018 (UPDATE 2)

Business Materials 29 December 2017 11:15 (UTC +04:00)
In 2018, the Central Bank of Azerbaijan (CBA) will maintain a floating exchange rate, given the ability to effectively absorb foreign shocks.

Details added (first version posted on 09:15)

Baku, Azerbaijan, Dec. 29

By Anvar Mammadov – Trend:

In 2018, the Central Bank of Azerbaijan (CBA) will maintain a floating exchange rate, given the ability to effectively absorb foreign shocks, said the bank's statement.

“The Central Bank can, in small and limited volumes, intervene in the foreign exchange market in order to prevent short-term changes in the national currency rate, which are not a consequence of fundamental macroeconomic factors,” says the statement.

According to the Central Bank, stability on the currency market of Azerbaijan will be provided in 2018 thanks to the projected transfers of the State Oil Fund (SOFAZ) and the balance of payments.

“The long-term trend of manat’s exchange rate is formed by these fundamental macroeconomic factors. The optimization of foreign currency control is also important for the long-term stability of the foreign exchange market,” says the statement.

The Central Bank intends to continue the conservative monetary policy in 2018, taking into account the relative softening in fiscal policy. To this end, the Central Bank will ensure the formation of adequate monetary conditions.

“The parameters of percentage corridor will be determined taking into account the indicators of economic cycle, analysis of the balance of inflation risks and processes occurring in different segments of financial markets. The Central Bank will give preference to maintaining the real level of the interest rate positive, taking into account the dynamics of inflation and inflation expectations,” says the statement.

The Central Bank have several times discussed the parameters of percentage corridor during 2017 and kept the interest rate unchanged.

The Central Bank kept the activity of framework and open market transactions with different terms (7, 14, 28 days and so on) in order to ensure money demand and efficient liquidity management.

During the year, a new list of securities, accepted as collateral for monetary policy operations, was approved and a list of framework and open market operations was expanded.

Thanks to the fact that the supply exceeded demand in the currency market, the Azerbaijani manat has strengthened by four percent since early 2017, which in turn caused a decrease in inflation expectations and dollarization.

Under the conditions of floating exchange rate policy, the Azerbaijani manat was under pressure of further growth after the second quarter of 2017, but serious strengthening of manat could lead to a number of micro and macro risks.