Tuesday, August 1, 2017

Azerbaijan holds rate as inflation risks not yet eliminated

     Azerbaijan's central bank left its benchmark refinancing rate at 15.0 percent, saying "inflation expectations have continued to decline, but inflation and related risks have not been completely eliminated."
      The Central Bank of the Republic of Azerbaijan (CBA), which has kept its rate at the current level since raising it in September 2016, added that macroeconomic stability in the country is deepening and business activity is improving while the exchange rate of the manat remains stable.
      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.
       As a result, the exchange rate of the manat came under heavy pressure as local depositors switched into U.S. dollars, forcing the CBA to first abandon its dollar peg in favor of a dollar-euro basket before devaluing the manat by one-third in early 2015. In December 2015 the CBA then shifted to a floating exchange rate regime and since then the manat has been more stable.
      Today the manat was trading at 1.69 to the U.S. dollar, up 6.5 percent this year, but inflation remains high, with the average rate in the first six months of this year at 13.9 percent, up from 13.8 percent in the first five months.
      Although inflation expectations have declined and monthly inflation saw a seasonal decline, the central bank said inflation and inflation risks had not been completely eliminated.
      But the tendency of inflation in the rest of this year is toward a decline, the central bank added.
      The country's economy is continuing to recover, the CBA said, noting that growth in the non-oil sector was 1.7 percent in the first half of the year while the commercial sector grew 3.7 percent and surveys show that consumer confidence has risen in the last quarter.
      Azerbaijan's Gross Domestic Product contracted by an annual 1.3 percent in the first half of this year, the sixth consecutive quarter of decline.



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