ACRA: Inflation rate to sharply drop in Azerbaijan
Baku, Azerbaijan, July 25
By Azad Hasanli - Trend:
Average annual inflation rate may reach six percent in Azerbaijan in 2018, according to Russia’s Analytical Credit Rating Agency (ACRA).
According to ACRA’s new report, the consumer price index is expected to be at 5.9 percent in 2019.
According to ACRA analysts, inflation will continue to decline and it will reach 4.2 percent in 2022.
“After reaching 12.9 percent in 2017, the y-o-y consumer inflation in Azerbaijan stabilized in 1H2018,” the report said. “By the end of May, the y-o-y CPI growth was 3.2 percent, significantly lower than the target level of 6-8 percent for 2018.”
ACRA expects an average annual growth of consumer prices in the range of 4-6 percent in 2018-2022, because by the end of 2017, the inflationary surge caused by the revaluation of the exchange rate of manat exhausted its potential.
“Since the beginning of this year, the CPI has been largely driven by fundamental factors: inflation in the economies of key trading partners of Azerbaijan, inflation expectations and money supply,” the report said. “Apparently, the Central Bank of Azerbaijan no longer expects significant inflationary outbursts, since the beginning of the year, the refinancing rate of the Central Bank has been decreased three times already, by 5 p.p. in total, having reached 10 percent by mid-July, with the corridor at +/-2 p.p.”
Among the main expected effects of the moderate inflationary background for the Azerbaijani economy are the continued growth of real incomes of the population and the potential revival of lending to the real sector, which is still in the shrinking zone since the end of last year.
However, the banking sector problems, including low public confidence, a sharp reduction in the number of commercial banks, lower volume of investments in fixed assets, can hinder the development of the real non-primary sector of the economy.
These difficulties forced the government to offer 100 percent guarantees for retail deposits and to accelerate the restructuring of IBA.
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