Friday, December 18, 2020

Azerbaijan cuts rate 17th time as inflation seen weak

      Azerbaijan's central bank lowered its policy interest rate for the fifth time this year, saying actual and projected inflation remains below the midpoint of its target range in the context of weak external and domestic demand due to the COVID-19 pandemic, showing there was a potential for an easing.
     The Central Bank of the Republic of Azerbaijan (CBA) cut its discount rate by another 25 basis points to 6.25 percent and has now cut it 125 basis points this year following earlier cuts in January, June, July and September.
     Since February 2018, when CBA entered a monetary policy easing cycle, the key rate has been cut 17 times and by a total of 8.75 percentage points from 15.0 percent.
      Future decisions about the interest rate corridor - where the lower limit is now 5.75 percent and the upper limit 6.75 percent - will take into account the impact of the pandemic, the pace of economic recovery and the likelihood of internal and external risks, the central bank said.
      CBA said today's policy decision was in the context of a continued balance in the foreign exchange market, weak growth in money supply and credit while the latest trends in the global energy market, and the prospects for their continuation in 2021, may support an improvement in Azerbaijan's external position and expectations for economic entities.
      Like many oil-exporting countries, Azerbaijan maintains a managed exchange rate regime against the U.S. dollar its currency, the manat, has been steady since 2017 at a rate around 1.7.
      The strategic foreign exchange reserves of Azerbaijan, where the world's first oil well was  drilled in 1846, has risen 3.3 percent since the start of this year to $50 billion, exceeding the annual gross domestic product.
      Azerbaijan's inflation rate was steady at 2.8 percent in October and November and CBA said factors that reduce inflation in the short run remain dominant as rising global food prices and anti-virus spending is offset by declining demand while a stable exchange rate and lower demand for credit amid significant uncertainties are the main factors behind stable prices.
      CBA's target range for inflation is 4.0 percent, plus/minus 2 percentage points, and the bank forecast inflation of around 3 percent by the end of this year and between 3.5 and 4.0 percent in 2021.
      In the medium-term, however, the recovery of demand and thus economic growth will be one of the main factors influencing inflation, with an improvement in the external environment, deferred demand and credit and fiscal activity, which envisages the implementation of construction in the occupied territories, will also boost demand, CBA said.
      Last month Azerbaijan and neighboring Armenia signed a Russian-brokered peace deal to end a conflict over the Nagorno-Karabakh region and CBA's rate cut comes only three days after Armenia's central bank raised its rate and signaled further hikes as it expects inflation to rise from rising global prices and strengthening domestic demand.
      Azerbaijan's economy shrunk an annual 3.5 percent in the second quarter of this year, up from a 2.7 percent decline in the first quarter and CBA said GDP in the first 11 months of the year was down 4.3 percent, including 2.9 percent in the non-oil sector.
      However, data shows economic activity is recovering, with business confidence growing in the non-oil refining, trade and services sectors in November from October.
      "Economic growth is expected to resume in 2021 due to the improvement of the external environment and the activation of deferred demand," CBA said, adding fiscal stimulus, measures to prevent a decline in credit flows and large-scale economic development will further support optimism.



Post a Comment