"We forecast that Azerbaijan will retain the manat's peg to the U.S. dollar at AZN1.7 to $1.0," this was stated by the International Rating Agency S&P Global Ratings in its rating assessment of Azerbaijan, APA-Economics reports.
The agency determined that the exchange rate of the manat will remain stable until 2028. It was noted that Azerbaijan will retain the manat's peg to the U.S. dollar at AZN1.7 to $1.0, supported by the authorities' regular interventions in the foreign-currency market: "Nevertheless, if hydrocarbon prices drop sharply and remain low for a prolonged period, we assume the authorities would consider adjusting the exchange rate to protect Central Bank of the Republic of Azerbaijan (CBAR) foreign currency reserves from a significant decline, like the one that happened in 2015."
S&P noted that fixing the manat exchange rate to the U.S. dollar offers greater predictability but deprives CBAR of the ability to conduct an independent monetary policy: "In addition, we consider monetary policy to be curtailed by the bank's still-limited operational independence."
"Domestic deposit dollarization had declined to 34% as of October 2024, from 55% before the pandemic. We attribute the improved attractiveness of savings in manat to the significantly higher average interest rate on national currency deposits (8.7%, compared with 2.9% for foreign currency deposits), combined with the stable exchange rate and favorable, above-budgeted oil prices. That said, if pressure on the manat exchange rate were to build, we believe that domestic residents could quickly redollarize to hedge their inflation and foreign exchange risks," - S&P added.
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