Uncertainty regarding inflationary environment for 2023 remains high - CBA

By Trend

Although the actual annual inflation rate in Azerbaijan has stabilized during the last two months, it still remains in double digits, and uncertainty about the inflationary environment for next year is high, Trend reports via Azerbaijan's Central Bank (CBA).

"Double-digit growth of the monetary base by the end of this year is forecasted. In this case, it was considered useful to tighten monetary policy to limit the excessive expansion of aggregate demand. In order to manage liquidity in the financial sector, and to strengthen the influence of the interest rate corridor parameters on interest rates in the short-term money market, it was decided to narrow the width of the interest rate corridor," said the CBA.

"Changing the parameters of the interest rate corridor also serves to maintain the attractiveness of accumulations in the national currency. The pace of monetary policy tightening, its level, and duration of staying at this level will depend on the dynamics of annual inflation rates in the coming period and updated forecasts. In case of a decrease in the annual inflation rates and forecasts, a pause in the tightening of monetary policy will be considered first, and then the possibility of its reduction," the CBA added.

According to the CBA, in November the monthly inflation rate totaled one percent, the annual rate - was 15.1 percent, and the annual core inflation rate was 14.7 percent.

"Among the factors determining the dynamics of inflation, factors related to foreign expenses remain dominant. The decline in world food prices by 14 percent over the past six months and the relative slowdown in partners' weighted average rate of inflation were among the factors that influenced the decline in inflation rates in recent months. But this effect occurs at intervals of 6–9 months," the CBA noted.

Azerbaijan's Central Bank added that inflation expectations change differently in various sectors. According to the results of monitoring of real sector enterprises, inflation expectations in November compared to October increased in trade and services, remained almost unchanged in the non-oil and gas industry, and decreased in the construction field.

The analysis conducted by the Central Bank shows that inflation peaked (15.6 percent) in the previous month, and it is expected that after this peak, it is going to steadily fall.

"Despite the one-digit inflation forecast for 2023, uncertainty about the inflationary environment remains high," CBA added.