By CentralBankNews.info
Azerbaijan’s central bank kept its benchmark refinancing rate at 15.0 percent and said an analysis of short and medium-term risks to inflation implied there was no need for any significant correction to its monetary policy.
The Central Bank of the Republic of Azerbaijan (CBA), which has maintained its rate since raising it in September 2016, also said the current account showed a surplus of 2.5 percent of Gross Domestic Product in the first half of this year due to higher oil prices and this was helping maintain a balance in the foreign exchange market.
The economy of Azerbaijan, which relies on oil and gas for 95 percent of its exports and 75 percent of government revenue, was hit hard by the fall of crude oil prices in 2014 and its currency, the manat, came under heavy pressure as residents switched into U.S. dollars.
Initially the CBA abandoned the manat’s peg to the dollar in favor of a dollar-euro basket and then in early 2015 it devalued the manat by one-third. In December 2015 the CBA then shifted to a flexible exchange rate regime and since then the manat has been more stable.
Today the manat was trading around 1.69 to the U.S. dollar, up 6.5 percent this year, and the central bank said the decline of the dollar this year was helping reduce inflation expectations and the stable exchange rate is helping further reduce the economy’s dollarization, with the current level of interest rates also helping stimulate savings.
Azerbaijan’s inflation rate was steady at 14.0 percent in August from July and there were no significant changes to inflation expectations, with various products and prices still sensitive to changes in government-regulated prices, the CBA said.
Helped by a trade surplus of US$1.9 billion in the January-August period, Azerbaijan’s strategic currency reserves rose by 11.5 percent, the CBA said, adding its expects the balance of payments to remain in a surplus by the end of the year.
In the country’s non-oil sector, economic output was up 2.2 percent in the first 8 months of the year, with tourism up 2.6 percent, non-oil industry up 4.6 percent, trade up 1.8 percent, and communications and information up 4.9 percent.
The CBA is currently using a flexible exchange rate regime but plans to adopt a floating exchange rage regime along with an inflation targeting regime, with the monetary base a reliable guide to its monetary policy stance.
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