15 November 2017, Baku
The Management Board of the Central Bank of the Republic of Azerbaijan decided to leave the refinancing rate and the interest rate corridor parameters unchanged on 15 November 2017 (refinancing rate at 15%, the floor of the interest rate corridor at 10%, and the ceiling at 18%).
The non-oil economy demonstrates positive dynamics fuelled by macroeconomic stability. A rebalanced foreign position contributes to longstanding sustainability of the FX market. The monetary condition reacts to demand of the economy for money, the liquidity needs of the fiscal sector and liquidity position of the banking sector. Non-monetary factors, and rising global prices for certain food products weighed on inflation. Analyses of middle- and long-term price stability factors indicate that no monetary policy corrections are needed.
The Management Board took the decision on interest rate corridor parameters in view of the following trends:
Economic activity. According to the State Statistics Committee (SSC), the non-oil sector grew 2.5% over 9 months of 2017, with higher contribution from trade. Non-oil trade grew 3% – the non oil industry 3.1% and agriculture 2.8%. The non-trade sector posted 2.4% growth – 2.1% trade, 3.2% tourism, and 6.2% communication and information. Gradual recovery of consumer confidence had an upward effect on economic growth along with government demand for investment and wider non-oil exports of goods and services.
Foreign balance and the FX market. Azerbaijan’s foreign sector indicators improve on the back of diversified exports, imports substitution and rising global oil prices. Surplus of foreign trade balance amounted to $2 billion over 9 months (y/y up by $ 0.5 billion).
Country’s strategic foreign exchange reserves increased by $4.4 billion (11.8%) to over $42 billion over 10 months of 2017.
Rebalancing of foreign trade sustains the forex market. The AZN/USD exchange rate has appreciated by 4% since early year meanwhile lowering inflation expectations.
The monetary condition. Fiscal sector’s demand for liquidity in national currency amid higher supply affected the monetary condition – money base in manat, monetary policy’s vital operational target, jumped 8.5% over 10 months of 2017.
The monetary policy was also affected by ongoing accumulation of banking sector liquidity, accompanied by 26.1% drop in banks’ lending portfolio since the early year.
High banking sector liquidity still triggers high demand for Central Bank’s sterilization tools. Over the past period demand prevailed over supply multifold in Bank’s auctions on placement of short-term notes and attraction of deposits, with the similar situation in the government securities market.
Inflation. According to the State Statistics Committee, average annual inflation was 13.7% over 10 months.
Prices swang due to imported inflation, changes in government regulated prices for goods and services, inflation expectations, and supply on particular groups of products.
Inflation’s external factors remain unchanged. Rising global prices for certain food products over recent months affected decrease in the inflation rate.
Overall heightened under certain cost factors, inflation expectations were prone to lowering.
Inflation is still imposed to middle- and long-term risks despite the fact that average inflation has stabilized.
The Management Board will next discuss the interest rate corridor parameters on 15 February 2018.