CBA shifts exchange rate policy
By Gulgiz dadashova
The Central Bank of Azerbaijan (CBA), which oversees financial market and financial system stability and operations in the country, announced that the Bank abandons the manat peg to the US dollar.
The CBA Board has decided to shift on February 16, 2015 from the bilateral targeting of the exchange rate to a bi-currency basket in setting the exchange rate of manat. It was considered feasible to follow the exchange rate policy on the basis of the dual-currency basket (USD/EUR).
Meanwhile, CBA President Elman Rustamov emphasized that any weakening of the currency would be gradual rather than sudden, saying that the central bank would “take into account the interests of the population.
“It is critical to make some kind of corrections to fiscal and monetary policy,” Rustamov said in an interview to Financial Times. “We consider that we should transit to a more flexible exchange rate regime and gradually we will transit to an inflation-targeting regime.”
The Central Bank will continue to operate in the foreign exchange market within the set corridor.
The use of new operating framework will enable to follow a more flexible exchange rate policy and ensure macroeconomic efficiency, as well as help economic entities gradually adapt to the new conditions, according to the CBA report.
The Azerbaijani manat has been effectively pegged to the US dollar at just over 0.78 manats per dollar since mid-2011, even as falling oil prices badly affected the national currencies of regional countries, including Kazakhstan, Georgia and Russia.
The official exchange rate of AZN to the USD has remained stable at 0.7844 AZN since December 18, 2014. From February 16, the US dollar grew by 0.05 percent and currently stands at 0.7848 AZN/USD.
The plan to drop the dollar peg is a key policy shift for Azerbaijan’s energy-export oriented economy. Oil, oil products and gas occupy lion's share in Azerbaijan's exports, making up 92 percent of the total figure and make up 60 percent of the state budget revenues.
The International Monetary Fund earlier announced that risks arising from low oil prices are mitigated in Azerbaijan in the short term by reserve buffers.
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