Azerbaijan central bank spent $8bn in 2015 in attempt to support manat

Azerbaijan central bank spent $8bn in 2015 in attempt to support manat
By bne IntelliNews January 6, 2016

The foreign exchange reserves of the Azerbaijani Central Bank (CBA) declined to $5bn at end-December, from $6.2bn at end-November, according to a statement by CBA's main directorate for monetary policy.

"The demand for foreign currency during 2015 was high, resulting in an imbalance in the foreign exchange market. To meet the demand for foreign currency, CBA sold more than $8bn during 2015, and its foreign exchange reserves decreased to $5bn in December," the statement read.

The Azerbaijani regulator lost over $10bn in foreign exchange reserves between August 2014 and December 2015 in an attempt to support the manat, despite the fact that other countries in the region - Georgia, Turkey, Russia andKazakhstan - promptly floated their currencies in order to save precious reserves. CBA devalued the currency by a third against the dollar in February 2015, but external pressures on the manat continued, prompting CBA to eventually float the currency on December 21, thus ending a four-year peg to the dollar.

Baku's delayed reaction might be explained by a concern "over domestic political stability in advance of parliamentary elections [in November 2015] and presumably were living on a prayer that oil prices would rebound", analyst Tim Ash from Nomura International believes.

The single greatest predictor for Azerbaijan's monetary stability - and economic performance in general - is the price of oil, as Baku relies on hydrocarbons for over 90% of its export revenues, some 70% of its budget revenues and over 30% of GDP. With oil prices expected to stay low in the medium term "given the dominance of the Saudi-Iran battle for supremacy...in the Middle East", as Ash explains, Baku will have to adjust its spending, and might have to resort to foreign borrowing, which is out of character for a country used to budget surpluses and a low debt to GDP ratio of 15% in 2015.

The floating of the manat is credit positive for the sovereign and its balance sheet, but Azerbaijani consumers have been hit by a skyrocketing inflation of as much as 30% for certain products in its aftermath. Meanwhile, the domestic banking sector, which was still battling the effects of the February devaluation before the December floating added insult to its injury, has reported a demand for foreign currency in the early days of January that was so high, it was unmanageable.

"Despite the fact that CBA's reserves are melting away, it still cannot cover all of our [the banks'] foreign exchange (forex) demand, so we are only partially meeting customer demand for forex at the moment. Demand for dollars is strong, and forex trading is profitable for banks, but this situation is not healthy for the market. CBA needs to increase interest rates, which are too low at 3.5%, and deposit guarantees in order to rebuild confidence in the market," sources in the banking sector told bne Intellinews

According to Trend news agency, a black market for foreign currency has emerged in Azerbaijan, in which the dollar trades at AZN2 to AZN2.2. The official exchange rate is AZN1.56 to the dollar.

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss