18 September 2017, Baku. On September 18th, 2017 the Management Board of the Central Bank of the Republic of Azerbaijan took a decision to leave the refinancing rate and other parameters of the interest rate corridor unchanged (the refinancing rate 15%, the corridor floor 10%, the corridor ceiling 18%).

Macroeconomic stability is maintained, while the real sector activity remains positive. Amid surplus in the balance of payments (BoP), the FX market is balanced aided by a stable exchange rate of manat. Money supply keeps pace with money demand of the economy and liquidity demand of the fiscal sector. Analysis of monetary and non-monetary factors of inflation shows that no significant corrections to the monetary policy are needed.

The following macroeconomic trends were taken into consideration while taking a decision on interest rate corridor parameters:

Economic activity. Dynamics of real sector indices remains positive. The non-oil sector posted 2.2% growth in 8 months of 2017 – the non-oil industry grew by 4.6%, trade 1.8%, tourism 2.6%, and information and communications 2.2%. A range of measures to develop the non-oil sector, higher public investment and external demand played a significant role in ongoing economic growth. Findings of the CBA’s real sector monitoring prove higher economic activity in the non-oil sector.

External balance and the exchange rate. The current account of the BoP displayed a 2.5% surplus of GDP over the first half of 2017 thanks to considerable y/y rise in average oil prices and decline in current non-oil account deficit as a result of macroeconomic policies carried out. In January- August surplus in the foreign trade balance was USD 1.9 B, while strategic foreign exchange reserves increased by 11.5%. Surplus in the BoP is forecast to maintain as of the yearend.

Amid surplus in the BoP, the FX market still maintains its balance, while the exchange rate of the national currency is stable. The AZN/USD exchange rate has appreciated since the beginning of the year, with a downward effect on inflation. A continuously stable exchange rate of manat is accompanied with lesser dollarization.

Monetary conditions. Though relatively softer, monetary conditions remained neutral overall in the period. The money base, the key operational target of the monetary policy, increased by more than 8% over the past period of 2017. Amid weak lending activity, increased money base is accompanied by excess liquidity in the banking system.

Despite various-term active open market and framework tools on hand, the CBA’s sterilization tools were in higher demand on the backdrop of high banking system liquidity.

Real interest rates for CBA’s liquidity operations remain at a level that may stimulate national currency denominated deposits.

Inflation. According to the State Statistics Committee, average annual inflation stood at 14% over 8 months of 2017.

Price dynamics and inflation expectations factors have not changed considerably. External factors of inflation are still highly volatile. Global food prices increased, while national currencies of some partner countries appreciated. Inflation expectations are still sensitive to price changes across separate product groups and government regulated goods and services.

The analysis of short and medium term inflationary risk factors suggests that no significant correction to the monetary policy is yet needed.

The Management Board of the Central Bank will discuss interest rate corridor parameters again on 15 November 2017.