Friday, September 18, 2020

Azerbaijan cuts rate 16th time to keep inflation in target

     Azerbaijan's central bank cut its key interest rate for the fourth time this year and for the 16th time in 2-1/2 years, saying this will support demand, accelerate the economic recovery and help keep inflation within its target.
     The Central Bank of the Republic of Azerbaijan lowered its discount rate by another 25 basis points to 6.50 percent and has now cut it by 100 points this year following cuts in January, June and July.
     Since February 2018, when CBA began its monetary easing cycle, the rate has been cut 16 times and by a total of 8.50 percentage points from 15.0 percent.
     The central bank added future decisions about the interest rate corridor would be based on the balance of risks, the trajectory of inflation, the international situation and the foreign exchange market.
     The lower limit of CBA's rate corridor is now 6.0 percent and the upper limit at 7.0 percent.
     Azerbaijan's inflation rate was largely steady at 2.8 percent in August from 2.9 percent in July, below the midpoint of CBA's target range of 4.0 percent, plus/minus 2 percentage points, due to weak aggregate demand.
      Inflationary expectations in the real sectors of the economy continue to decline, CBA said, adding it had adjusted its inflation forecast and now expects inflation of 3.0 to 3.2 percent by the end of this year, below the center of its target range.
     "Although there has been some improvement in global economic activity with the partial easing of the quarantine regime in many countries, the recovery process has been very slow amid expectations of a second wave of the epidemic," CBA said, adding volatility in financial markets, including currency and commodity markets, had risen this month.
     "The continuation of the quarantine regime in many countries around the world hinders the continued recovery of oil demand," CBA added.
     Azerbaijan is one of the birthplaces of the oil industry with the first oil well in the world drilled in 1846 and the first oil refinery built in Baku in 1878.
     Despite low oil prices this year, Azerbaijan's foreign trade balance has remained in surplus, helping boost its foreign exchange reserves that currently stand at US$51.4 billion, up 0.6 percent this year. 
      The currency market has remained stable and increased transfers from the country's oil fund in connection with the state budget will provide additional support and balance the foreign exchange market, CBA said.
      The bank added the rate of decline in the country's non-oil sector has slowed due to an easing of pandemic-related restrictions, with the bottom of the decline in gross domestic product in the non-oil sector of 2.5 percent at the end of the first half and a 1.7 percent declined at the end of August.



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