CBA says discount rate to be reduced in August
By Sara Israfilbayova
The Central Bank of Azerbaijan (CBA) downed the lower limit of the interest rate corridor on liquidity operations from 12 percent to 10 percent. The Board of the CBA kept the discount rate and the upper limit of the interest rate unchanged.
The CBA noted that over the past period of 2017, economic growth in Azerbaijan’s non-oil sector has recovered, and proficit emerged in the balance of payments thanks to the growth in exports and decrease in imports.
The Bank further added that stability of Azerbaijan’s national currency is strengthening.
“Over the last five months, Azerbaijan’s non-oil sector grew 2.3 percent, trade grew 3.2 percent and non-oil industry - 3.9 percent,” the message noted. “Growth in consumer spending, public and net foreign demand were the main factors for the non-oil sector’s growth. Further economic growth this year will depend on acceleration of the planned structural reforms, opportunities for the expansion of net foreign demand, as well as recovery of the investment activity, including financial intermediation.”
During the last four months after switching to a floating exchange rate regime, supply on the foreign exchange market exceeded demand significantly and the exchange rate of the Azerbaijani manat stabilized.
“Until the end of the year, we don’t forecast any important changes in the macroeconomic policy that ensures stability of the manat exchange rate,” the CBA said.
The message also said that the CBA will view the issue of reducing the discount rate at its next meeting on August 1.
The next meeting of the Board of the CBA on reconsidering the level of the discount rate is scheduled for August 1.
The Bank noted the potential to reduce the discount rate from the 2H2017, depending on economic and inflation dynamics. Today, the CBA’s discount rate is 15 percent.
Moreover, the CBA reported that the average annual inflation in the country is 13.8 percent. Analysis shows that the inflation is caused by non-monetary factors, according to the message.
The CBA surveys show that despite the decline in inflation expectations against the backdrop of stabilization of the manat rate and neutralization of money supply, they remain significant.
The CBA Board believes that under stable monetary conditions and the absence of rate volatility, inflation risks were limited and inflation expectations of the population and business should decrease in the second half of 2017.
The planned transfer of the CBA to targeted inflation, the expected results in the direction of deepening financial stability, the approval and introduction of new fiscal rules, as well as the institutionalization of the coordination framework for macroeconomic policy in general will provide an opportunity to manage medium-term inflation risks more effectively.
The CBA has been operating since 1992.
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