By CentralBankNews.info
Azerbaijan’s central bank lowered its benchmark refinancing rate for the third time in a row, saying inflation will remain in single digits and within the bank’s target range by the end of this year while economic growth is forecast to continue to the end of 2018.
The Central Bank of Azerbaijan (CBA) cut its rate by 100 basis points to 10.0 percent and has now cut its rate by a total of 500 basis points this year as it continues to unwind four large rate hikes in 2016.
Between February and September 2016, the CBA raised its rate by a total of 12 percentage points to bolster confidence in the manat currency and curb inflation after the plunge in global crude oil prices undermined investor’s confidence.
Azerbaijan’s inflation rate has declined sharply this year and averaged 3.2 percent in the first five months of this year due to a strengthening the effective exchange rate of the manat, management of money supply and a reduction in inflation expectations, CBA said.
In addition, seasonal factors have also supported the decline in inflation and surveys show that inflation expectations by households and businesses have fallen to a minimum.
The main risks to the inflation outlook stems from higher domestic production costs, fiscal expansion and aggregate demand, inflation expectations and an asymetric sensitivity to the exchange rate.
Azerbaijan’s economy has recovered this year after two years of recession, with growth in the January-May period of 1.9 percent, CBA said.
Oil and gas account for roughly 95 percent of the country’s exports and higher foreign demand and public investment are helping boost the non-oil sector.
Azerbaijan’s balance of payments is also improving, with a current account surplus of 15.4 percent of Gross Domestic Product in the first quarter of the year. In the first five months of the year exports were up by 65.8 percent and non-oil exports up by 14.2 percent, CBA said.
Earlier the CBA reported that currency reserves had risen by an annual 13.4 percent to the end of May to US$5.471.4 billion.