Azernews.Az

By Gulgiz Dadashova

The Central Bank of Azerbaijan (CBA) says that the drop of the euro rate poses no risk to the strategic currency reserves of Azerbaijan.

CBA Chairman Elman Rustamov believes that the downing euro is no threat to Azerbaijan's currency reserves as the country is ready for such scenarios.

European stock markets dropped and the euro inched lower against the dollar since mid-May. During this time, the U.S. stock market managed to repeatedly renew its historical highs and the growth of the major U.S. stock indexes boosted the currency.

The dollar gained 0.2 percent to $1.2886 per euro on May 22 in New York after falling earlier to $1.2998, the all-time low since May 14.

However, experts believe that the fall of the euro is temporary and the euro will regain the lost positions, as the major exporters -- the U.S., China and Japan -- are not interested in its fall.

The April data on inflation in the euro area indicated that inflation has fallen to the lowest value in the last three years and is significantly below the target level of the European Central Bank (ECB). This may lead the ECB to take action to revitalize the economy, which will boost growth of the euro in world stock markets.

Rustamov said the decline of the euro has no effect in absolute value, with no loss recorded.

"The primary objective is to maintain reserves. This requires optimal diversification in their management, which we did. So, no worries there.

"This process continues since the beginning of the international financial crisis. The CBA along with the state oil fund SOFAZ is effectively diversifying foreign exchange reserves," Rustamov said.

Azerbaijan's strategic currency reserves are formed from CBA reserves, SOFAZ assets and treasury of the Finance Ministry.

In Azerbaijan, where the structure of the strategic currency reserves is determined based on the currency structure of foreign trade, foreign debt and the currency of the monetary policy, the U.S. dollar plays the key role in all components.

In any case, the fall of the euro is not in the interests of Azerbaijan, as most of the country's trade turnover accounts for European countries. Currently, oil and petroleum products account for the main part of Azerbaijan's exports, but there is also a certain amount of non-oil products. In this scenario, the strengthening of the national currency, the manat, against the euro could limit the export of Azerbaijani businessmen.

The CBA said the strategic currency reserves of the country rose by 2.3 percent, or $1.1 billion, in the first quarter of 2013 compared to early this year. The ratio of the strategic currency reserves to the country's GDP is close to 70 percent and on this indicator Azerbaijan is among the top 15 countries in the world.

The total strategic currency reserves of Azerbaijan as of April 1, 2013 amounted to $46.6 billion, of which $12.3 billion accounted for the currency reserves of the central bank and $34.3 billion - for SOFAZ funds. At a time 60 percent and 35 percent of the CBA assets held in foreign currencies are concentrated in the U.S. dollar and the euro, the State Oil Fund's portfolio makes up 51.32 percent in dollar terms and 38.81 per cent in euros.

Azerbaijan's strategic currency reserves allow the country to finance three-year imports of goods and services. The volume of strategic currency reserves exceeds the external debt of Azerbaijan eight-fold.