Baku, Azerbaijan, April 17
By Azad Hasanli - Trend:
The rate of Azerbaijan's national currency, the manat, has been at the level of 1.7 AZN/USD since April 2017. The manat stability is supported by recovering indicators of the economic growth, people's confidence in the manat, growing exports and other factors.
However, speculations over possible devaluation of the manat has recently resumed. So, let's take a look whether there are prerequisites for cheapening of the national currency.
Inflation and policy of the Central Bank of Azerbaijan
The main task of the Central Bank of Azerbaijan (CBA) in 2018 is to achieve lower inflation rate at 6-8 percent. The cheapening of the national currency in Azerbaijan could cause a rise in prices, that is, an increase in the inflation rate, which contradicts the CBA's policy.
CBA Chairman Elman Rustamov, commenting on the possibility of the manat devaluation, has stated that CBA would not allow a sharp cheapening or strengthening of the manat, as this could lead to a number of undesirable macro- and micro-economic risks.
CBA, according to Rustamov, has three priorities: a stable rate with low volatility, cheap currency, and low inflation.
International organizations also don't see any reason for cheapening of the manat. Particularly, Moody's analysts say that today there is no pressure on the Azerbaijani manat, and in this regard, the inflation rate will be 5-6 percent in the country in the next two years.
The monetary policy of neighboring countries or those with whom Azerbaijan has huge trade volumes can also affect the manat. Particularly, there have been concerns about the USD, the base rate of which the US Federal Reserve raised this March.
However, Head of FX Strategy/Saxo Bank John Hardy told Trend that presently the higher base rate of the USD will not have a significant influence on the rate of the Azerbaijani manat. As for the change in the euro exchange rate, this is not so important for the Azerbaijani manat as the USD or oil price, according to Hardy.
Export operations ensure currency inflow into the country. If the country exports more than it imports, then its trade balance remains positive, which in turn helps strengthen the national currency.
In 2017, the surplus of Azerbaijan's trade turnover amounted to $5.03 billion. That is, the export volume exceeded the import volume by over $5 billion. Today, the positive trend continues, as the trade surplus hit $1.16 billion in January-March 2018.
The additional inflow of foreign currency into the country is also ensured by the development of tourism.
In 2017, the number of tourists visiting Azerbaijan increased by 20 percent and by almost 13 percent in the first quarter of this year.
Tourists spent more than $190.9 million in Azerbaijan in January-February 2018 (an increase by 20 percent for the year). In 2017, the expenditures of foreign tourists in the country exceeded one billion manats.
In the medium term, the flow of foreign currency to Azerbaijan will be also ensured through gas projects. The country will be provided with additional billions of dollars through launching gas production within the second stage of development of the Shah Deniz field and extension of the Contract of the Century until 2050.
Public confidence in national currency
Population converts savings to foreign currency as a result of loss of confidence in the national currency. As a result, the demand for dollars, euros and other foreign currency grows and this leads to the weakening of the national currency.
According to the Central Bank of Azerbaijan, at the end of February 2018, deposits in national currency in the country's banks amounted to 2,935.2 million manats, which is two times more than in February 2017.
The share of deposits in national currency for this period increased from 20.6 percent to 37.8 percent. The share of manat deposits reached a maximum since February 2015, when the first devaluation occurred.
Thus, the population's confidence in the manat reached a three-year high. This is an important factor which stipulates that the population once again began to believe in the stability of the manat.
In case of Azerbaijan, oil prices play a certain role for the rate of manat. Of course, in the short term, there is no impact of oil prices on the rate of manat, but there is such dependence in the medium and long term.
However, today there are no reasons for concern. The matter rests not only in the fact that oil is currently traded at $70 per barrel, while the Azerbaijani oil has completely renewed almost a 3.5-year maximum of $74. The issue is that the base oil price in the state budget for this year is set at $45 per barrel. And this figure is lower than even the most pessimistic forecasts. Thus, the government decided to protect itself from possible risks associated with the oil factor.
The Azerbaijani economy is growing sustainably. For this year, many international financial institutions expect the country's GDP to grow by 1.5-2 percent, as well as economic growth from the next year thanks to Shah Deniz 2 and other projects. According to their forecasts, there will be a single-digit inflation in the country. Azerbaijan's exports are also steadily growing through the government’s incentive measures and benefits.
All these factors give grounds to believe that for today the change in the rate of manat is improbable and groundless. So is there a reason for panic?
Azad Hasanli, head of Trend's Russian Service