Azerbaijani manat rises in price against partner countries' currencies

Azerbaijani manat rises in price against partner countries' currencies

BAKU, Azerbaijan, March 16

Eldar Janashvili - Trend:

Amid the stability of the Azerbaijani manat against the US dollar, the currency of our main trading partners is depreciating, Vusal Gasimli, Executive Director of Azerbaijan’s Center for Analysis of Economic Reforms and Communication (CAERC) said, Trend reports referring to the CAERC on March 16.

Gasimli noted that in the first half of March, against the Azerbaijani manat the Georgian lari depreciated by 6.5 percent, the Russian ruble by 9.8 percent, the Turkish lira by 1.4 percent, the Ukrainian hryvnia by 5.9 percent, Chinese yuan - by 0.39 percent, and Kazakh tenge - by 6.7 percent respectively. Thus, the real effective rate of the manat, which is calculated taking into account the nominal rate and inflation of currencies of the trading partners of the issuing country, has risen in price.

All methods used to measure the ratio of the real effective manat rate to the equilibrium level (purchasing power parity, macroeconomic balance, Big Mac index and others) show that the real effective exchange rate of the national currency was still below its equilibrium point.

The rate, calculated on the basis of purchasing power parity, determines the local currency value as the necessary number of dollars to buy goods on the market of another country relative to the purchase of the same product in the US.

“In other words, the price of a product worth $1 in the US will be indirectly determining the exchange rate in the local market,” he said.

In Azerbaijan, this figure, according to World Bank statistics for 2018, is $0.25. It means a product that can be bought in the United States for $1 can be bought in Azerbaijan for 25 cents.

According to the World Bank, in 2018 in Azerbaijan one “international dollar” was estimated at $0.25, in Belarus - at $0.25, in Kyrgyzstan, Georgia and Ukraine - at $0.29, in Kazakhstan - at $0.31 and Russia at $0.39. The devaluations that have occurred in these countries under the impact of recent global shocks have strengthened the real effective rate of the manat.

“If we take the real effective rate (REER) of manat in 2000 as 100, then the coefficient of the same rate at the beginning of 2020 is 93.3. In other words, the real effective manat rate at the beginning of this year was lower than in 2000. However, amid the recent devaluations of the currencies of Azerbaijan’s trading partners, the stability of the manat compared to the US dollar against the real effective manat rate is getting more expensive and approaching the target figure,” Gasimli said.

The growth of the real effective manat rate further strengthens Azerbaijan’s position in the CIS in terms of the minimum and average indicators of pension and wages in the country.

“On the other hand, in order to regulate the impact of increasing the real effective manat rate on the competitiveness of the economy, it is necessary to continue institutional reforms, further improve the competitive environment, develop human capital and enter the markets”, he added.

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Follow the author on Twitter: @eldarjanashvili

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