Weekly economic review

Last week, the Board of Directors of the National Bank of Azerbaijan (NBA) decided to begin implementation of the Conception on Maintenance of the Cost of the Manat at a Stable Level relative to Currency Basket. The two-currency baskets consisting of the US dollar and Euro will be introduced in the early stage. The share of the two currencies will change by stages.

By its decision NBA tries to achieve the optimal structure of the basket taking into account the role of the leading currencies of the world in foreign economic relations of the country. These measures are being carried out within the improvement and formation of a currency policy in order to ensure macroeconomic stability.

Frequent changes in exchange rates of leading world currencies and of Azerbaijan promoted the significance of the exchange policy. These changes together with the import of inflation, subjects economic bodies of the country to risk.

A decision by the NBA to pursue a rate policy on the basis of a two-currency basket (dollar and euro) aims at preventing the nominal effective rate of the manat from further dropping which has dropped by 1% since the beginning of the year. One third of inflation appeared as a result of the price rise in trade partners which affected the nominal effective rate of the manat compared to currencies of foreign trade partners of the country.

As import goods should be sold in mantas, the prices of imported goods are high due to the changeability of the rates of leading world currencies. Last year the rate of the manat against US dollar strengthened by 3%, but it dropped against the Euro due to the superfluous drop in the dollar rate against a number of European currencies. Therefore, in order to eliminate superfluous strengthening of the nominal effective rate of the manat, the NBA decided to take into consideration not only the rate of the manat against the dollar in the domestic market, but also the dynamics of the dollar rate against currencies of foreign trade partners of Azerbaijan, Huseynov said.

In order to be able to influence a nominal effective rate, we began targeting the rate of the manat against the Euro which will give true forecasts on the dynamics of the nominal effective rate and to hinder inflation in the country.

As a result of integration into the European economic system many economic bodies of Azerbaijan carrying out operations with European countries are subject to risk.

Transition to targeting the rate with help of the two-currency basket stimulates development of the domestic currency market. As a result, the participants of the market will be able to employ improved methods of risk management.

As of 1 March, the currency reserves of Azerbaijan at the NBA disposal totaled to $4,015,500.

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