CBA keeps discount rate, interest rate corridor parameters unchanged

The Central Bank of Azerbaijan (CBA) kept the discount rate at 15 percent. The lower limit of the interest rate corridor was kept at 10 percent and the upper one at 18 percent.

This decision was made during the meeting of the CBA board on Aug. 1.

The CBA explains this decision by improving the foreign trade balance, which makes it possible to ensure the balance of the currency market and keep the manat exchange rate at a stable level.

“Exports increased by 36.5 percent, non-oil exports - by 27.9 percent, while imports decreased by 15.7 percent in January-June 2017 compared to January-June 2016. Surplus of foreign trade balance amounted to $1.9 billion in January-June 2017,” said in the CBA report.

According to the CBA, the stability of manat creates a de-dollarization tendency.

Azerbaijan’s non-oil GDP continued to grow by 1.7 percent in January-June 2017 compared to January-June 2016. The growth rate in the trade sector was 3.7 percent, in the non-oil industry – 5.4 percent and in the agricultural sector – 2.2 percent.

“As for the inflation, despite the seasonal decline, short and medium-term risks have not been fully neutralized yet,” the CBA said.

"There is an expectance of a reduction in the core inflation rate this year,” the CBA said. “The core inflation level will depend on the exchange rate of manat, aggregate internal demand, changes in commodity and services prices regulated by the government and so on.”

According to the CBA, the issue of changing the discount rate will be further discussed on September 18, 2017.

S&P: Azerbaijan’s real GDP to grow in next 3 years

The international ratings agency Standard & Poor’s (S&P) forecasts that Azerbaijan’s real GDP growth will be two percent in 2018.

According to the S&P, the country’s real GDP growth will be one percent, and 3.5 percent – both in 2019 and 2020.

“The launch of new gas exports from Shah Deniz Stage II gas field is the key factor underpinning this forecast,” says the agency’s report.

“Additionally, we consider that consumption and non-hydrocarbon-related investments should post a stronger performance as confidence improves and inflation subsides,” said the S&P analysts.

According to the agency, Azerbaijan’s nominal GDP will go up from 60 billion manats ($38 billion) to 89 billion manats ($48 billion) until 2020.

The GDP per capita in Azerbaijan will be $4,000 in 2017, $4,400 – in 2018, $4,700 – in 2019 and $4,800 – in 2020.

Fitch expects Azerbaijan’s 2019 real GDP growth to rise to 4.3%

Azerbaijan’s real GDP growth is forecast to rise to 4.3 percent in 2019, says Fitch Ratings in its report.

“Significant energy projects will support growth and the balance of payments in the medium term. Output from the Shah Deniz 2 project is scheduled to start in late 2018 and will double gas production when fully operational. The construction of associated major pipelines is ongoing. As a result, real GDP growth is forecast to rise to 4.3 percent in 2019,” said the report.

Fitch Ratings has affirmed Azerbaijan's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'BB+' with Negative Outlooks. The issue rating on Azerbaijan's senior unsecured foreign- and local-currency debt has also been affirmed at 'BB+'. The Country Ceiling has been affirmed at 'BB+'. The Short-Term Foreign- and Local-Currency IDRs have been affirmed at 'B' and the issue rating on Azerbaijan's senior unsecured short-term local-currency bond has been affirmed at 'B'.

Azerbaijan's 'BB+' ratings balance a strong external balance sheet and low government debt, according to the report. “Higher oil prices returned the current account to a surplus in 1Q17, the first since 3Q15. Rising prices, and greater oil and gas production in 2019, will support continued surpluses,” said Fitch.

Fitch analysts point out that the exchange rate of Azerbaijani manat has been stable in recent months.

“Exchange rate stability has allowed a moderation in inflationary pressures. Average inflation is forecast to decline, to 5 percent in 2019 from 11.8 percent in 2017,” said the report.

Fitch expects significant growth in Azerbaijani Central Bank’s reserves

The reserves of the Central Bank of Azerbaijan (CBA) will reach $8 billion by 2020, according to the forecasts of Fitch Ratings.

Currently, the Central Bank’s reserves are slightly more than $5 billion as of Aug.1, 2017.

“Higher oil prices returned the current account to a surplus in 1Q17, the first since 3Q15. Rising prices, and greater oil and gas production in 2019, will support continued surpluses. These will allow the Central Bank to rebuild its revenues,” said the report.

Earlier, Standard & Poor’s (S&P) also forecasted Central Bank’s reserves to increase.

S&P expects Central Bank’s reserves to reach to $8.19 billion in 2020. Its forecasts for the next several years are as follows: