By CentralBankNews.info
Azerbaijan’s central bank cut its benchmark discount rate for the 7th time, saying inflation within the target range, stable inflation expectations and a favorable external environment allows for the continuation of normalization of monetary policy.
The Central Bank of the Republic of Azerbaijan (CBA) cut its rate by another 25 basis points to 8.75 percent and has now lowered its key rate by a total of 625 basis points since February 2018.
Azerbaijan’s headline inflation rate rose to 2.1 percent in March from 1.9 percent in February, within the bank’s target range of 4.0 percent, plus/minus 2 percentage points.
CBA said statement 12-month inflation in March was 2.5 percent, close to the bottom of the band, with food prices and non-food below general inflation while demand, non-monetary factors, monetary conditions and the exchange rate keeping inflation within the target range.
“Recent forecasts show that inflation will remain within the target (4+/-2%) during the rest of 2019,” CBA said, adding that international finance and credit organizations also predicted inflation will remain in single digits this year.
Azerbaijan’s inflation rate has tumbled since mid-2017 when it hit 14 percent and decelerated faster than expected in 2018, triggering CBA’s rate cuts as its main priority is to keep inflation within the target range and promote economic activity.
CBA lowered its inflation target for 2019 to 4.0 percent from last year’s target of 6-8 percent.
A 34 percent rise in oil prices since the start of the year helped boost Azerbaijan’s trade surplus in the first quarter and the current account is expected to show a considerable surplus at the end of the year, CBA said.
Azerbaijan’s economy has also been growing since the start of this year, with growth up 3.0 percent year-on-year in the first quarter as non-oil growth was up 1.7 percent.
Fiscal stimulus as part of a social reform package is expected to boost economic activity further but CBA said high domestic production is a pre-condition for higher consumer demand not to trigger excess inflationary pressure.
The exchange rate of Azerbaijan’s manat has been largely steady since mid-2017 around 1.70 to the U.S. dollar.
Following the fall in crude oil prices in mid-2014, the manat came under heavy pressure as local depositors began switching into U.S. dollars. At that point, the manat was effectively pegged to the U.S. dollar so the CBA had to draw on its reserves to defend it.
But by early 2015 the CBA was forced to abandon its dollar-peg and then later that year it also abandoned a dollar-euro basket peg.
In December 2015 the CBA then switched to a floating exchange rate regime that finally helped stabilize the exchange rate.
Today CBA said the process of de-dollarization was continuing, with individuals’ dollar savings now at 60.5 percent and residents’ at 58.7 percent.