Azernews.Az

This statement by the International Rating Agency "S&P Global Ratings" underscores its confidence in Azerbaijan's monetary policy. The agency expects the manat exchange rate to remain stable until 2028, supported by government interventions in the foreign exchange market to maintain the rate at 1.7 AZN.

However, S&P warned, "if hydrocarbon prices fall sharply and remain low for a long time, the government will consider adjusting the exchange rate to prevent a significant decrease in the foreign exchange reserves of the Central Bank of Azerbaijan."

The agency acknowledged that pegging the manat to the US dollar "offers greater predictability but deprives the Central Bank of the opportunity to conduct an independent monetary policy." Despite this, it noted some progress, with domestic deposit dollarization falling from 55% pre-pandemic to 34% in October 2024. "We attribute the greater attractiveness of deposits in manat to the high average interest rate on national currency deposits (8.7%, compared to 2.9% for foreign currency deposits), a stable exchange rate and above-budget oil prices," S&P added.

In the same report, the agency addressed regional geopolitical tensions. "A number of controversial issues still remain between Azerbaijan and Armenia, which hinder the achievement of a peace agreement."

S&P noted the challenge of "Azerbaijan's formal renunciation of future claims over Karabakh by amending the Armenian constitution," describing it as "a difficult domestic political issue in Armenia."

Additionally, the agency highlighted the Zangezur corridor dispute: "We understand that Azerbaijan is also promoting the creation of road and rail links between mainland Azerbaijan and its exclave Nakhchivan. Specifically, Azerbaijan demands that this link be exempted from Armenian customs control. So far, Armenia has not wanted to accept this."

While S&P does not foresee immediate hostilities, it cautioned, "there is a risk of a re-ignition of the conflict if a diplomatic solution is not found. Such a scenario would carry significant social and economic risks for Azerbaijan and Armenia."