Tuesday, May 2, 2017

Azerbaijan holds rate, sees positive trade balance end-yr

    Azerbaijan's central bank left its benchmark refinancing rate steady at 15.00 percent, saying it expects a positive trade balance and current account balance by end of 2017 due to higher oil prices and an increase in exports, including non-oil exports, and a decline in quarterly imports.
    The Central Bank of the Republic of Azerbaijan (CBA) has maintained its rate since raising it to the current level in September 2016, the culmination of total rate hikes of 12 percentage points starting in February 2016 aimed at bolstering confidence in its manat currency.
     Hit by the fall in crude oil prices in 2014, Azerbaijan saw heavy pressure on the exchange rate of the manat, with local depositors switching into U.S. dollars. Oil and gas account for 95 percent of the country's exports and 75 percent of government revenue.
     From 2011 to February 2015, the CBA effectively pegged its manat to the dollar but had to draw heavily on reserves to defend the peg as the fall in crude oil prices dampened economic activity. 
    The CBA then abandoned the dollar peg in favor of a dollar-euro basket and shortly afterwards devalued the manat by 33.5 percent against the dollar and 30 percent against the euro, with the exchange rate set at 1.05 to the dollar.
     In December 2015 the CBA shifted to a floating exchange rate regime and during the following months the manat rebounded. 
    But by late May 2016 the manat again fell to hit a record low of 1.95 to the U.S. dollar on Feb. 1, 2017. In January the central bank let the manat float freely to save its currency reserves.
     Since then the manat has strengthened and was trading at 1.68 to the dollar today, up 7.1 percent since the start of this year.
      The CBA's currency reserves rose 1.45 percent in March from February for an annual rise of 9 percent to $4.433 billion. Last year the central bank's currency reserves fell by more than $1 billion, or 20 percent, from 2015.
      Noting the positive trend in Azerbaijan's balance of payments and an appreciation of the manat, the CBA said the volatility in the exchange rate had decreased despite it's limited participation in the foreign exchange market, with the spread between buying and selling reduced to a minimum.
     The rise in the manat and improved demand for the currency has helped push down inflation expectations across all income groups in the country, the central bank added.
     Azerbaijan's inflation rate rose to 13.2 percent in March from 12.5 percent in February while the trade balance improved to US$1,291 billion in the fourth quarter of last year, helping shrink the current account deficit to $251 million from $312 million in the third quarter.
    It was the fifth consecutive quarter with a declining current account deficit.
    Azerbaijan's economy shrank by an annual 0.9 percent in the first quarter of 2017, up from a contraction of 3.8 percent in the fourth quarter of 2016.




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