Central Bank of Azerbaijan reveals main goal for 2019
By Leman Mammadova
Maintaining stability of prices and keeping inflation at 4 percent (±2 percent) will be the ultimate goal of the monetary policy of the Central Bank of Azerbaijan (CBA) in 2019, Chairman of the CBA Elman Rustamov said at an expanded meeting of the bank’s board on January 26, Trend reports.
He noted that in 2018, inflation fell at a faster pace than expected and stopped at the single-digit level, adding that the average annual inflation was 2.3 percent in 2018.
“Macroeconomic stability in 2018 created conditions for economic growth in Azerbaijan,” Rustamov said. “GDP actually grew by 1.4 percent and the non-oil sector grew by 1.8 percent.”
He added that the non-oil industry showed higher growth rates, noting that this indicates the acceleration of industrialization in Azerbaijan and the role of the trade sector in the non-oil sector’s growth.
He further noted that the current account surplus of the balance of payments amounted to $5.1 billion, or 15 percent of GDP in January-September 2018.
“Strategic currency reserves increased by 6.5 percent compared to the beginning of 2018 and amounted to $45 billion at the end of the year,” he said. “The official currency reserves of the CBA increased by 5.5 percent to $5.6 billion.”
He also noted that the parameters of the interest rate corridor have changed several times since the beginning of the year, while the discount rate has gradually decreased from 15 percent to 9.75 percent.
Inflation is the depreciation of money caused by the excess of the amount of money in circulation over their commodity coverage and it manifests itself in higher prices for goods, growth in unsatisfied demand, etc. It is primarily caused by the overflow of channels of money circulation with excess money supply in the absence of an adequate increase in the mass of goods.
Inflation is measured using a consumer price index (CPI). The CPI measures changes over time in the cost of purchasing a standard basket of goods. The market basket includes the prices of food, clothing, housing, fuel, transport, medical services, education and other goods and services purchased in everyday life.
In most developed countries, inflation is considered a serious socio-economic problem, as it leads to higher prices, the depreciation of savings, reduced incentives to invest, the flight of capital into foreign assets, precious metals and real estate. In addition, inflation slows down the rate of economic growth, complicates long-term planning and, in its extreme forms, increases social and political tensions in society. Today, many countries use monetary aggregates or exchange rates as intermediate targets for national monetary policy. However, in the 1990s, some industrialized countries broke with this tradition, focusing on inflation. This approach to controlling inflation is called "inflation targeting."
Inflation targeting is the use of special measures established by state authorities of the country, with the aim of maximum control over the level of inflation in the state. These actions improve the economy in the country and allow you to monitor the dynamics of inflation in the state.
Inflation targeting is divided into four stages: setting the planned inflation rate in the country for a certain period; selection of suitable monetary instruments for controlling inflation; the use of monetary tools for the current need; a comparison of inflation in the country at the end of the reporting period and a planned analysis of the effectiveness of the conducted monetary policy.
Earlier, Elman Rustamov commented on the transition to inflation targeting in Azerbaijan and noted that it will take at least two years as it a very complex process that requires inter-agency cooperation. The decisive part of the process is the activation of the inter-bank manat market, because the inflation targeting is implemented through the targeting of interest rates. The development of the securities market is very important in this issue. For the development of the securities market it is important to establish trust between banks and to intensify liquidity trade at the initial stage, and this requires a developed collateral market.
Many international experts agree that in the context of the global crisis, the inflation targeting has a great advantage due to its greater stability. The inflation targeting helps reduce the volatility of the economy. Many countries that used inflation targeting before the 2008 crisis did not change it to another monetary policy.
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