By Akbar Mammadov
The Azerbaijani government will fully supply citizen’s demand for foreign currency amid falling oil prices in the world markets, managing director of the Center for Analysis of Economic Reforms and Communication Vusal Gasimli has said while briefing on the current situation in the foreign exchange market.
“Currently, the cash outside of banks is around 9.3 million manats [4 billion dollars]. In the coming days, the intensity of currency exchange in banks will decrease because the monthly expenses of the population are one-third of the cash supply. That is, a part of the cash is needed by the population to meet current consumption, and there is no need to convert those funds into dollars”, Vusal Gasimli said.
He also noted that $700 million was sold to banks at the Central Bank at three foreign exchange auctions involving the State Oil Fund last week. At each subsequent auction, there was less demand for currency than before.
“It means that next weeks, especially given that the Nowruz holiday shopping will be in Azerbaijani manat, the rate of conversion of the manat to the dollar will slow down,” Vusal Gasimli added.
The conversion of savings in Azerbaijani manat into dollars means the difference between the savings rates on the one hand and the average loss of up to 10 per cent on conversion costs. According to the rational option theory, now the conversion of savings in Azerbaijani manat into dollars is less risky and the population is reluctant to do that. On the other hand, while deposits in manat in 2014 were worth more than $9 billion, the figure is now $5.1 billion. The pressure on the dollarization of deposits in manat has also decreased many times compared to 2014.
“We can foresee that there will be needed less currency for imports compared to the previous year, considering the perspective of the decrease of imports from China, Iran and other countries during this year and the import of monetary gold in the last year,” Gasimli said.
The Central Bank's currency reserves only function as a macroeconomic "stabilizer" and "airbag". Foreign exchange auctions held this week at the Central Bank were held together with the State Oil Fund. That is, the State Oil Fund is already planning to offer $ 6.8 billion at the current rate to the local market this year to fund budget transfers and improve housing conditions.
At the same time, Analyst of the Center for Analysis of Economic Reforms and Communications Masuma Talibova said that prolongation of the term of the full deposit insurance will protect the rights of depositors: “Upon the instruction of President Aliyev, full deposit insurance will be extended for nine more months. Thus, the bill on prolongation of the term of the full deposit insurance was submitted to the Milli Majlis (Azerbaijani parliament). Discussion of the project has been registered on the agenda,” she added.
It should be noted that the application of this law removes limits on the number of insured deposits and applies to any amount of deposits.
“According to the law “On full deposit insurance”, banks that are members of the Deposit Insurance Fund (all banks in Azerbaijan are included in this list) are fully insured with an annual interest rate of 2.5% in the upper level of the foreign currency and 10% in the national currency. The Fund provides the compensation of 100% for losses. Depending on the currency of the deposit, compensation is paid in national currency deposits in Azerbaijani manat, deposits in US dollars and euros in the same currencies, those in other currencies are paid in US dollars or euros in cross-sectional rates according to the exchange rate of the day”, Masuma Talibova emphasized.
Akbar Mammadov is AzerNews’ staff journalist, follow him on Twitter: @AkbarMammadov97
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