Dutch bank ING has said that higher oil prices strengthen Azerbaijan’s economic resilience, while the stable exchange rate of the manat limits imported inflation, satted in a new economic analysis prepared by ING on four CIS countries — Azerbaijan, Armenia, Kazakhstan and Uzbekistan, APA-Economics reports.
Taking into account that inflation in Azerbaijan remains within the Central Bank’s target range of 4±2%, the bank’s analysts forecast that the policy rate will remain at 6.5%.
According to ING’s calculations, every additional $10 increase in the global oil price per barrel could raise Azerbaijan’s annual export revenues by an amount equivalent to 2–4% of GDP. At the same time, the stable exchange rate of the manat limits the impact of higher oil prices on the foreign exchange market.
The report states that a 10% increase in global food prices could raise inflation in Azerbaijan and the other three countries mentioned by approximately 1.5–2 percentage points.
At the same time, around 45% of Azerbaijan’s imports come from developed countries and the Middle East. This increases the country’s sensitivity to external price increases.
ING believes that a sustained rise in global inflation and persistently high interest rates in major economies could create additional risks for countries in the region.
If a negative global scenario materializes, there could be a risk of a 1–2 percentage point increase in medium-term inflation forecasts. In such a situation, the Central Bank of Azerbaijan’s policy of avoiding interest rate hikes could also come under pressure.
Nevertheless, the bank emphasizes that Azerbaijan’s large sovereign financial assets are an important buffer against external economic shocks.
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