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Average annual inflation in country may reach 4 pct

28 October 2019 [15:24] - TODAY.AZ

By Azernews

By Leman Mammadova

The Central Bank of Azerbaijan predicts average annual inflation for 2019 at 4 percent, said Elman Rustamov, Chairman of the CBA, at a press conference, on October 25.

“Since early 2019, we predicted inflation at the level of 4 percent (±2 percent). Today, inflation expectations are gradually declining, as shown by our polls. I think that by the end of the year inflation will be in the middle of the forecast range,” he noted.

Rustamov added that stabilizing factors, including a surplus balance of payments, a balanced foreign exchange market and a large foreign exchange reserve, prevail in the risk balance of inflation in the short term.

As for the factors that can cause acceleration of inflation growth rates, he named fiscal incentives aimed at improving the social well-being of the population, as a consequence, expansion of the monetary base, as well as changes in food prices in the world market.

In his words, in the medium and long term, the risks are associated mainly with external factors.

The average annual inflation in the country amounted to 2.6 percent at the end of September 2019. The average annual inflation amounted to 2.3 percent in 2018.

Rustamov considers that a complete transition to a floating exchange rate regime in 2020 is unlikely.

“A full transition to a floating mode of the course, according to the strategic roadmap, was planned for 2020, but I do not think this is not entirely realistic. Today, a de facto stable rate allows us to keep inflation low. Therefore, we are forced to maintain a stable course,” he said.

He noted that the prospects for a full transition to a floating mode depend on the transition to inflation targeting.

Rustamov noted that a stable exchange rate regime currently can be observed in most oil exporting countries.

“Today, 27 of the 30 oil exporting countries maintain a stable exchange rate. Only after inflation targeting can we talk about the transition to a floating rate regime,” he said.

In his words, other conditions for the transition to a floating regime, includes strengthening of the securities market and an increase in the banks' securities portfolio, as well as the interbank money market.

Rustamov further stressed the need to change the business model of banks in the country to stimulate business lending and an extensive dialogue between business and banks.

“Today, it is important for us to bring the financial ecosystem to a general discussion and find out the interests of both banks and business. It is also necessary through reforms to change the business models of banks and interest them in lending to the real sector,” he noted.

He added that a lot of work is needed in this direction, and, first of all, to eliminate the conflict of interests between the banking sector and business.

“One of the conflicting points that have been touched upon by banks for several years now is the simplification of the process of implementing collateral, reducing the time spent on this process,” he said.

“In addition, banks also need to accelerate the resolution of their own problems and create a functional risk management system,” underlined Rustamov.

Rustamov further pointed out that since early 2019, the strategic currency reserves of Azerbaijan were up by 11.7 percent and exceeded $50 billion.

He also said that the CBA has decided to reduce the discount rate to 7.75 percent from 8 percent influenced by stabilization of oil prices in recent months, low inflation and a stable macroeconomic situation.

The decision entered into force on October 25. The lower threshold of the interest rate band has been reduced from 6.25 percent to 6 percent, the upper - from 9.75 percent to 9.5 percent. This is the seventh discount rate in 2019.

Rustamov noted that decisions on the parameters of the interest rate corridor will continue to be made depending on the actual and forecasted level of inflation, as well as on the implementation of risk scenarios.

“Inflation risks slightly decreased, this allows us to continue the normalization of monetary policy. At the same time, taking into account a number of internal and external inflationary factors and risks, we prefer to maintain the anti-inflationary nature of monetary policy,” he added.

Next time, the CBA will discuss the issue of revising the discount rate at a meeting on December 13.


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