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Azerbaijan manat real effective exchange rate goes up

26 November 2008 10:49 (UTC +04:00)

Baku. Vahab Rzayev - APA-Economics. The real effective exchange rate (REER) of the manat (national currency) climbed 23.5% for total trade weighted, 23.0% for import weighted and 23.3% for export weighted during January-October, said the National Bank of Azerbaijan.
The central bank said the figures rose 21.3%, 21.9% and 18.6% respectively for the non-oil sector.
The REER rise is caused by high inflation, as well as changes in official rates of foreign currencies against the manat.
The dramatic increase in exchange rate indexes is associated with a change in official rates of foreign currencies against local currency, and low inflation in trade partner countries as a result of the global financial crisis.
The REER is the weighted average of the countryâ€™s currency relative to currencies of major trading partners, and it is calculated by taking into account the countryâ€™s share in a given nationâ€™s foreign trade.
That means an average rate of the manat against the currencies of countries involved in Azerbaijanâ€™s foreign trade.
As the inflation rate in each country is assumed to broadly indicate the trends in domestic costs of production, the REER is expected to reflect foreign competitiveness of domestic products.
Nevertheless, effective exchange rate indicators are widely used to assess competitiveness.
An appreciation trend of the real effective exchange rate is considered unfavorable for the growth of export and import competing industries. This refers to the low competitiveness of domestic products.
However, this is case given that a long-term period is taken into account.
Compared to December, 2000, REER on the total trade turnover in October increased 17.3% and the rise was 7.9% for non-oil sector alone.
A fall in the growth rate of non-oil sector REER in the long run is associated with the fact that inflation rate in the partner countries exceeded that of Azerbaijan.
National Bank estimated that inflation was 94.6% in Azerbaijan and 98.5% in partner countries since 2000.