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Qabil Ashirov

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The latest statements from the Central Bank of Azerbaijan provide an important insight into the country's monetary policy and offer investors a clearer picture of where the manat is likely headed in the coming months. While many market participants continue to speculate about possible changes to the exchange rate, the available data suggest that the Central Bank remains firmly committed to preserving currency stability as part of its broader strategy to contain inflation.

Central Bank Governor Taleh Kazimov recently emphasized that the strengthening of the manat against the currencies of Azerbaijan's major trading partners has helped reduce imported inflation. This point deserves particular attention because Azerbaijan is heavily dependent on imported consumer goods, industrial equipment, pharmaceuticals, vehicles and raw materials. When the manat strengthens against foreign currencies such as the Turkish lira, the euro, the Russian ruble or the Chinese yuan, Azerbaijani importers need fewer manats to purchase the same products abroad. Lower import costs reduce pressure on domestic prices, making it easier for the Central Bank to achieve its inflation target.

The governor's remarks are also consistent with recent developments in the foreign exchange market. According to the Central Bank, during the first seven months of the year it conducted purchase-oriented interventions totaling more than US$2 billion. In other words, instead of selling foreign currency to defend the manat, the Central Bank has been buying dollars from the market.

This distinction is significant. Purchase-oriented interventions indicate that foreign currency supply has exceeded demand. Azerbaijan continues to generate substantial foreign exchange revenues through oil and natural gas exports, while transfers from the State Oil Fund provide additional liquidity to the domestic economy. Since government expenditures, wages and many domestic transactions are denominated in manats, a considerable portion of these dollar inflows eventually enters the local foreign exchange market.

Under normal market conditions, an excess supply of dollars would put downward pressure on the U.S. dollar against the manat, causing the Azerbaijani currency to appreciate. Rather than allowing a sharp appreciation, the Central Bank has chosen to purchase surplus foreign currency, thereby accumulating reserves while maintaining exchange-rate stability. The intervention data therefore illustrate not weakness in the manat but the opposite: the market has supplied more dollars than were immediately needed.

This policy also supports financial stability. Large exchange-rate fluctuations create uncertainty for businesses, importers and households. A stable exchange rate allows companies to plan imports, calculate costs and negotiate contracts with greater confidence. At the same time, it reduces volatility in inflation expectations, an important consideration for any central bank seeking to maintain price stability.

The relationship between exchange-rate policy and inflation is particularly important in Azerbaijan's current economic environment. Imported inflation has historically been one of the main transmission channels through which global price shocks affect the domestic economy. If the manat were to weaken significantly, imported goods would immediately become more expensive, increasing production costs for businesses and ultimately pushing consumer prices higher. By maintaining exchange-rate stability and allowing the manat to remain relatively strong against many trading-partner currencies, the Central Bank effectively limits one of the principal sources of inflationary pressure.

The intervention figures released by the Central Bank reinforce this interpretation. More than US$2 billion in purchase-oriented interventions during only seven months represents a substantial volume of foreign currency absorbed from the market. Such operations would hardly be necessary if Azerbaijan were facing a shortage of foreign exchange or persistent depreciation pressure. Instead, they suggest that the authorities have had to manage abundant dollar inflows while preventing excessive appreciation of the national currency.

Taken together, the governor's comments and the intervention statistics point toward a coherent monetary strategy. The Central Bank is not simply defending a fixed exchange rate for its own sake. Rather, exchange-rate stability serves as an important instrument in achieving price stability. In an economy where imports account for a significant share of consumption and production, preventing unnecessary depreciation directly contributes to lower inflation.

This approach is also consistent with the broader objectives of modern central banking. Regardless of whether a country operates a floating, managed or fixed exchange-rate regime, central banks generally seek to keep inflation under control because stable prices support sustainable economic growth, preserve purchasing power and reduce uncertainty across financial markets.

Based on the information currently available, the outlook for the manat appears relatively straightforward. The Central Bank has openly acknowledged that a stronger manat against the currencies of major trading partners helps reduce imported inflation, while its own intervention data show that it has been purchasing surplus foreign currency rather than defending the exchange rate from depreciation. These developments suggest that the authorities have both the means and the incentive to preserve currency stability. As long as the current policy framework remains unchanged, the most reasonable expectation is that the manat will remain stable. The Central Bank has little incentive to allow depreciation because a weaker currency would almost certainly increase imported inflation, making it more difficult to maintain price stability—the institution's primary monetary policy objective.