Azerbaijan's inflation status for 2019

Azerbaijan's inflation status for 2019

BAKU, Azerbaijan, Jan. 2

By Eldar Janashvili - Trend:

In 2019, the indicator conserved by the inflation target in Azerbaijan became one of the lowest among partner countries and the CIS, Trend reports with reference to the Central Bank of Azerbaijan (CBA).

The policy launched in 2018 to approximate monetary conditions to a neutral level was continued in 2019. According to official statistics, in November 2019, inflation fell on annualized basis below the center of the target range - to 2.6 percent.

Overall, inflation was influenced by an increase in consumer activity and food prices on the world market, exchange rate stability, monetary conditions, administrative price dynamics and low inflation expectations. In the first 11 months of 2019, the average annual core inflation, excluding regulated prices and seasonal fluctuations in prices of agricultural goods, amounted to 2.4 percent.

The decrease in annual growth rates for non-food products and services (1 percent and 0.9 percent, respectively) also had a limiting effect on general inflation.

The volume of foreign exchange transactions in the interbank market increased by 15 percent in 2019. At the same time, the real effective manat rate in the non-oil sector fell by 2 percent in the 11 months of 2019.

In 2019, the CBA discussed the parameters of interest rate corridor eight times and a decision was made to gradually reduce the discount rate from 9.75 percent to 7.5 percent. In general, since the beginning of 2018, the discount rate has been halved. The expansion of money supply also played an important role in neutralizing monetary conditions. The monetary base in manat has grown by 23 percent since the beginning of the year. The growth of money supply in manat (M2) in the first 11 months of 2019 amounted to 13.8 percent. Mitigation of monetary conditions affects the reduction of interest rates.

Overall, on new deposits attracted in manat since the beginning of 2018, the average interest rate decreased by 2.9 percent, and on new loans in manat by 3.4 percent.

Interest rate in the government securities market also changes in parallel with the dynamics of the interest rate corridor of the CBA. The processes of de-dollarization continued under conditions of low inflation and a balanced foreign exchange market. So, the amount of deposits of individuals in US dollars decreased from 62.5 percent (at the beginning of the year) to 54.1 percent.

In order to effectively manage liquidity in economy and the banking system, the CBA adequately used monetary policy instruments. Since September, the periodic diversification of sterilization instruments of the CBA with the placement of 84, 168 and 252-day notes has been important to support the formation of interest in the short-term period of the yield curve.

Despite the decrease in interest rate over the period, a significant excess of demand at auctions shows that a significant structural surplus remains in the liquidity position of the banking system.

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Follow the author on Twitter: @eldarjanashvili

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