Azernews.Az

BAKU – Azerbaijan, the third-largest energy producer among former Soviet republics, may move to a managed floating exchange rate for the manat as the economy improves, according to central bank Chairman Elman Rustamov, Bloomberg reported.

The manat was pegged to the dollar in March 2009 to protect the nation’s financial stability as demand for U.S. currency increased during the global credit crisis, according to the central bank. The bank aims to keep the manat stable at 0.803 manats per dollar this year, Rustamov, 58, said.

"If macroeconomic conditions allow, we are ready to move to a managed floating exchange rate," he said Sept. 16 in an interview in Baku. "But first there needs to be an assessment of the current account balance, the government’s fiscal situation and the real economy."

Azerbaijan’s economy may expand between 4 percent and 5 percent this year, compared with a 14 percent slump in 2009, after world oil prices rebounded, Rustamov said. North Sea Dated Brent crude, the benchmark for Azerbaijan’s oil, has averaged $77.06 a barrel this year, 37 percent more than in the same period last year.

Higher prices for oil, which makes up 93 percent of the Caspian Sea nation’s exports, will also boost the country’s current account surplus after it fell by 38 percent to $10.2 billion last year. The current account is the broadest measure of international trade and money flows.

"We are considering these issues, but there is no doubt that a stable exchange rate must be supported as an important factor for financial stability," said Rustamov, who has been chairman of the central bank since 1995.

The central bank will maintain the peg this year because there is pressure for the manat to appreciate and a stronger currency would put too much strain on the non-oil economy as the country recovers from recession, Rustamov said. He declined to comment when asked whether the central bank might move toward a managed float in 2011.

The manat has gained 12.5 percent against the dollar since Azerbaijan redenominated its currency in January 2006 at a rate of 1 new manat for every 5,000 old manats.

The government plans to gradually increase spending next year as oil production stabilizes at around 50 million tons annually, according to Rustamov. Oil production rose to 50.4 million metric tons last year from 44.5 million tons in 2008, according to the Azeri State Statistical Committee. Gas output was little changed at 16.33 billion cubic meters.

Azerbaijan’s international reserves will probably rise to $6.5 billion in 2010 and $8 billion in 2011, after dropping as low as $4.9 billion in July 2009, he said.

Annual inflation will accelerate to as much as 10 percent this year before slowing to between 7 percent and 8 percent in 2011, Rustamov said. The central bank plans to control inflation by maintaining a stable exchange rate and increasing debt sales to remove excess liquidity from the economy, he said.

"Inflation is at a satisfactory level for us," Rustamov said.