CBA: FRS decision on interest rate not to affect manat
By Nigar Abbasova
The U.S. Federal Reserve on December 14 raised interest rates for the first time in a year, signaling that rates could continue to rise in 2017 more quickly than expected.
The widely expected increase decision, which became the second since the financial crisis of 2008, is deemed to be an indicator of Fed’s growing confidence that the economy is on a sustainable growth path.
The increase, which was unanimous and modest raised key interest rate by a quarter-point, from a range of 0.25 to 0.5 percent, still low level, in terms historical standards.
The Fed officials predicted that they would raise the benchmark rate a little more quickly in the coming years, reaching 2.1 percent by the end of 2018. Some 3 rate hikes are expected in 2017, while the rate may reach the average level of 1.375 percent by late 2017.
Influence on Dollar
Higher interest rates in a country increase the value of that country's currency as compared to countries offering lower interest rates.
The decision expectedly influenced the rate of the U.S. dollar. The greenback rose close to 14-year highs against a basket of other currencies.
The dollar index rose 0.5% against euro, yen, pound sterling, Canadian dollar, Swedish krona and Swiss franc, as the dollar is deemed to be the equivalent of the assessment of all other assets in the world.
Influence on Manat
The final determination of a currency's exchange rate does not always follow simple straight-line calculations but becomes a result of a number of interrelated elements that reflect the overall financial situation.
The Central Bank of Azerbaijan (CBA) said that the possible psychological influence of the decision on the changes in exchange rate of the Azerbaijani manat do not have any economic justification.
The exchange rate regime applied in Azerbaijan stipulates that the USD rate depends on the demand-supply ratio in the currency market of the country, not the FRS decision; therefore key interest rate is not the most significant factor affecting the change in the national currency of Azerbaijan.
“The ratio is determined not by the volume of currency inflows and outflows but also by the sum of transfers from the State Oil Fund. The decision may have a short term influence on the countries, which have big volumes of speculative capital proceeds. Therefore no short-term influence is expected on the situation in Azerbaijan. As for the middle and long term influence, the government and the CBA will take all necessary macroeconomic measures to keep the process under control,” the CBA said.
Influence on Oil market
Negative influence of the decision on the energy market turned to be a short-term phenomenon.
Oil prices stabilized after sharp falls in the wake of the U.S. interest rate rise.
North Sea Brent crude oil was up 30 cents at $54.20 a barrel while U.S. light crude oil was up 10 cents at $51.14 a barrel.
The positive dynamics in prices is mainly connected with the faith in the OPEC and non-OPEC deal. The market expects prices to jump above $60 per barrel, should 13-member OPEC and other producers reduce output in line with pledges.
Support for prices also came from reports of falling U.S. crude inventories. The U.S. Energy Information Administration (EIA) data showed that commercial crude inventories last week declined by 2.56 million barrels to 483.19 million barrels.
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Nigar Abbasova is AzerNews’ staff journalist, follow her on Twitter: @nigyar_abbasova
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