Azernews.Az

By Nigar Abbasova

The Central Bank of Azerbaijan (CBA) will increase the interest rate from 7 to 9.5 percent starting from August 8, while interest rate cap and floor will remain unchanged – 15 and 4 percent, respectively.

The CBA said the interest rate increase is aimed at formation of real interest rates at a level that will stimulate the attraction of deposits in national currency and increase its credibility.

The measure, which is considered to be taken in a bid to underpin the national currency (the manat) and encourage manat deposits, is also expected to allow increasing attractiveness of sterilization operations held by the Central Bank. The change in the monetary policy of the country is aimed at the provision of macroeconomic stability in the country.

The change is expected to influence the agiotage, which was connected with the conversion of means to USD, as the conversion of the obtained funds into USD will become disadvantageous.

The decision is also expected to increase the confidence in national currency, promote increase of manat deposits, and create conditions for improvement of instruments of monetary policy. Last time, the interest rate was changed in March 2016, when the CBA increased it from 5 to 7 percent. The interest rate has almost never exceeded 5 percent since 2009.

Drop in oil prices and economic slowdowns have influenced the situation in the financial market of the country. The Central Bank of Azerbaijan switched to a floating rate of the manat, on December 21, 2015 following intensified external economic shocks. The bank abandoned its dollar peg thus allowing the currency to tumble by almost a third. The exchange rate between the manat and US dollar changed from 1.0499 to 1.5500 after the shift.

Official exchange rate of the US dollar and euro to Azerbaijani manat was set at 1.598 manats and 1.7797 manats, respectively, on August, 5.

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Nigar Abbasova is AzerNews’ staff journalist, follow her on Twitter: @nigyar_abbasova

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