By Leman Mammadova
The Central Bank of Azerbaijan (CBA) expects inflation in the country to remain within the stated goal, at the level of 4 ± 2 percent, this year.
According to CBA estimates, there are stabilizing factors that balance short-term inflation risks.
The main factors affecting the stabilization of inflation include a favorable international environment, a surplus balance of payments, a balanced foreign exchange market, and monetary conditions of anti-inflationary nature.
The government of Azerbaijan forecasts average annual inflation of 3.8 percent for 2019. In 2018, the average annual inflation was 2.3 percent.
Rufat Guliyev, Azerbaijani MP, a member of the parliamentary committee on economic policy, industry and entrepreneurship, believes that Azerbaijan does not expect a big jump in inflation. “If the salary will continue to grow in the country, this may be accompanied by a one percent increase in inflation.”
He justified his forecast by the fact that the country’s gold and currency reserves are growing, which also holds back all possible risks associated with changes in oil prices. “This factor is taken into account in the budget law for this year, funds are provided for leveling the impact of price changes in the oil market.”
Elshad Mammadov, Azerbaijani economist, professor of Azerbaijan State University of Economics (UNEC), expects that the inflation rate in Azerbaijan will not exceed five percent by the end of this year.
Some experts' assumptions that the introduction of a social package, an increase in the minimum wage and pensions in Azerbaijan will lead to a sharp increase in inflation are not grounded, he said.
Since its independence Azerbaijan experienced an increase in costs, and a lack of demand inflation, that was associated with high prices for credit resources and a high level of monopolization, which led to a shortage of money in the national economy.
“Today it is already scientifically proven that inflation is formed both in the case of an excess money supply, and in the case of its shortage,” he noted. “In our case, we are talking about the second factor, that is, the lack of money supply, which prevents the progressive development of the national economy.”
He stressed that increasing the social package of expenses aims to increase the money supply in the country, adding that at present there is no inflation risk associated with an excess money supply in Azerbaijan.
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.
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.
As the transition to inflation targeting in Azerbaijan, Elman Rustamov, Chairman of CBA, believes 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 term. 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.
Leman Mammadova is AzerNews’ staff journalist, follow her on Twitter: @leman_888
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