Weekly review of key events in Azerbaijan's financial market

By Trend

The Board of the Central Bank of Azerbaijan (CBA) last week made a decision to increase the interest rate from seven percent to 7.25 percent, Trend reports.

At the same time, the upper limit of the interest rate band increased from eight percent to 8.25 percent, while the lower limit remained unchanged at six percent.

Azerbaijan’s strategic foreign exchange reserves increased by 4.4 percent ($2.2 billion) from January through November 2021 and reached $53 billion.

The CBA’s reserves increased by 10.2 percent and exceeded $7 billion.

According to the CBA, if the current trends remain, a big surplus of the balance of payments is expected in 2022.

Besides, last week the CBA said that the share of the Turkish lira in the assets and liabilities of the Azerbaijani banking system is insignificant and therefore the change in the rate of the Turkish currency won’t affect the currency position of the Azerbaijani banking system.

According to the CBA, macroeconomic and financial stability is maintained in Azerbaijan.

"The rapid growth of non-oil exports and the balance of payments surplus, formed amid the favorable world oil prices, maintain the balance in the foreign exchange market. Improvement in expectations is accompanied by a decrease in dollarization,” the CBA said. “In these conditions, the depreciation of the Turkish lira doesn’t affect the ratio of supply and demand in the foreign exchange market and the manat rate against the US dollar. Changes in the rate of the Turkish lira don’t significantly impact inflation in Azerbaijan.”

Besides, the CBA noted that the depreciation of the Turkish lira may temporarily change its share in various bank transfers compared to other currencies.

"However, it’s not expected that changes in the geography of transfers or in the current structure will have a significant impact on the financial system of Azerbaijan as a whole," added the Central Bank.

According to the CBA’s baseline forecast, the inflation rate will stabilize from the first quarter of next year while from the second half of the year inflation rate will surpass the upper limit of the target range.

“According to the official statistics, the monthly inflation rate in November was 1.5 percent while for 12 months - 11.1 percent,” the CBA said. “Average annual inflation rate was 6.2 percent while the average annual core inflation rate was 3.9 percent from January through November 2021. Inflation rate continues to grow in all subgroups of goods and services.”

Moreover, the CBA stressed that the consumer price index for food products increased by 1.9 percent in November compared to the previous month while the annual food inflation rate was 14.9 percent. The average annual food inflation rate reached 7.4 percent in the first 11 months of this year.

According to last week’s report, the European Bank for Reconstruction and Development (EBRD) will expand the access of Azerbaijan's small and medium-sized businesses (SMEs) to financing.

The EBRD said that it plans to provide Azerbaijan's Bank Respublika a loan in the amount of $13.5 million, which will contribute to doubling support for the banking sector in Azerbaijan.

"The first credit line in the amount of about $9.5 million will be provided within the framework of the agricultural financing mechanism of Azerbaijan. This mechanism, supported by EU funds, is aimed at expanding financing of the agricultural sector in Azerbaijan, which will accelerate its development," the EBRD noted.

In addition, according to the bank, another credit line worth about $4 million will be provided to SMEs in Azerbaijan.

The change by the VISA payment system of a part of interbank commissions when paying for goods in Russia will not affect the countries of Central Asia and Azerbaijan. Decisions on pricing issues are made in individual regions, and any change in Russia will not affect the countries of Central Asia and Azerbaijan, a representative of VISA said.

Last week, Asian Development Bank (ADB) revised up forecasts on the GDP growth projection for 2021 from 4.1 percent to 4.7 percent, reflecting an improved outlook for Azerbaijan, Georgia, Kazakhstan, Tajikistan, and Uzbekistan on account of their generally robust recovery in the first three quarters of the year.

It was also reported that during the visit of the regional operations manager of the Islamic Development Bank (IDB) Farid Ahmed Khan to Azerbaijan, representatives of the bank visited the Ministry of Digital Development and Transport. The sides discussed the issues of current cooperation, as well as potential projects that can be financed by the Islamic Development Bank during the meeting with the delegation.

Moreover, the bank's support for the projects in the field of transport, "Smart City", "Smart Village", especially in the field of urban transformation, the possibility of obtaining technical support from the bank in the field of digital transformation were discussed.

The Islamic Development Bank expressed intention to cooperate in the financing of specific projects in the field of ICT, transport, and infrastructure in Azerbaijan’s Karabakh region.