Friday, September 17, 2021

Azerbaijan raises rate 1st time in 5 years to cut inflation

      Azerbaijan's central bank raised its benchmark interest rate for the first time in five years but was neutral in its guidance, saying the next decision on rates would depend on the change to the balance of risk to inflation, the state of the economy and the outlook.
      The Central Bank of the Republic of Azerbaijan (CBA) raised its discount rate by 25 basis points to 6.50 percent, pushing up the lower limit of its interest rate corridor to 6.0 percent and the upper limit to 7.0 percent.
      It is CBA's first rate hike since September 2016 when the rate was raised to 15.0 percent. 
      From February 2018 CBA embarked on a monetary easing cycle and cut the rate 17 times and by a total of 8.75 percentage points. This includes 5 cuts last year in response to the COVID-19 pandemic by a total of 1.25 percentage points, most recently in December last year.
      Azerbaijan's inflation rate has accelerated since January and rose to 4.8 percent in August from 4.5 percent in July, within the central bank's target of 4.0 percent, plus/minus 2 percentage points.
      CBA said its decision to raise the rate was due to the impact on the domestic economy from an "intensification of inflation" in the global economy, especially rising food and materials costs, transport and logistic costs.
      These factors are weakening the neutralizing effect of monetary policy by strengthening the role of inflation factors in the balance of risks to price stability, the bank said, adding:
      "Preventing inflation from deviating from the target on the forecast horizon will cause monetary policy to move out of the pause phase."
      CBA forecast inflation would average 5.4-5.8 percent this year and then 4-5 percent in 2022.
      In June the International Monetary Fund (IMF) forecast average inflation this year of 4.0 percent and 3.2 percent in 2022 compared with 2.8 percent in 2020.
      The economy of Azerbaijan, which relies on oil and gas for 90 percent of its exports, grew by an annual 35.5 percent in the second quarter of this year, up from 3.0 percent in the first quarter.
      Data today showed Azerbaijan's economy in the first 8 months of the year grew 3.6 percent from the same period last year, the fastest economic expansion in the same period since 2015.
      The IMF forecast growth of 2.3 percent this year, up from a contraction of 4.3 percent last year, and 1.7 percent in 2022. 



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