Finance

Finance

Central Bank: Banks sold $8.8 bln to population in 2015

24 February 2016 08:43 (UTC +04:00)

According to the outlook, supply of foreign currency significantly declined, demand for foreign currency increased in 2015: “Decline of the supply of foreign currency was caused by the decline in oil price in the world market and foreign currency revenues due to the fact that economic situation in the partner countries worsened. Oil revenues dropped in the condition of decline in surplus of balance of payment. Sharply increase of demand for foreign currency was caused by increase of dollarization. Sharp decline in global oil price and devaluation waves in the partner countries strengthened expectations for fall of national currency and led to increase of dollarization. Sharp increase of demand for foreign currency is reflected in both cash and cashless segments of the currency market”.

So, in 2015, the foreign currency sold by Azerbaijan-based commercial banks to the population increased 47.4% to $8.8 bln.

50% of USD and 29% of EUR was sold in the first quarter of 2015.

“Taking into account the serious pressures on manat rate and currency market, Central Bank of Azerbaijan set the exchange rate of USd against manat at AZN 1.05 on February 21, 2015. At the same time, it started to conduct the exchange rate policy on the basis of bi-currency basket mechanism which includes USD and EUR. After February devaluation and switching to a new operation mechanism, currency market and manat rate had started to adapt to oil price of $50-55. In May-July, Central Bank had purchased a certain amount of currency. However, sharp decline starting late July increased expectations of changes in manat rate. At the same time, negative impacts of the devaluations in the partner countries on international competitiveness of national economy increased. Since early 2014, the national currencies of several partner countries devalued over 100%. This situation made manat rate and currency market adapt new oil price. Taking this into account, on December 21, 2015, the Central Bank of Azerbaijan passed a decision to switch to a floating rate. Switching to the new exchange rate put an end to application of bicurrency basket mechanism. After switching to the new exchange rate, Central Bank’s interventions to the currency market have significantly reduced, the bank said.

Totally, CB’s net currency sale amounted to $8.4 bln in 2015.

As at the end of 2015, Central Bank’s foreign currency reserves made $5 bln and 90.3% of money supply (M2 board) (minimal 10-20% according to international norm).