By Azernews

By Ayya Lmahamad

Azerbaijan's Central Bank Board has decided to raise the interest rate by 0.25 percentage points, from 7.25 to 7.5 percent, Trend has reported.

Central Bank Board Chairman Elman Rustamov made the remarks at a press conference on January 28.

The chairman stated that the upper limit of the interest rate corridor raised from 8 to 9 percent, while the lower limit remained unchanged at 6 percent.

It was noted that the decision was made based on the forecast of short-term and medium-term inflationary factors, taking into account the impact of increasing inflationary processes in the global economy, in particular, the transfer of rising prices for food and raw materials, transportation and logistics costs, as well as the processes of liberalization of regulated prices and tariffs to the national economy amid the growing balanced domestic demand.

Inflation

Rustamov stated that the inflation in Azerbaijan in 2021 was 6.75 percent.

Noting that the country's export prices increased by more than 20 percent last year, he added that the cost of transporting goods has also increased. Furthermore, he stated that Azerbaijan's exports of goods from the oil and non-oil sectors increased during this time period.

He added that annual inflation in Azerbaijan is expected to be higher than the target range (2 to 6 percent), at around 6.6-7.5 percent in 2022.

According to him, the Central Bank expects annual inflation to be close to the target range in 2023.

Currency rate

Rustamov emphasized that the Azerbaijani manat's currency rate will be stable in 2022.

Rustamov stated that the Central Bank has pursued a neutral policy in this regard rather than a defensive policy, emphasizing that the Bank is interested in protecting national currency from revaluation rather than devaluation.

He stated that prior to the second devaluation of the manat in 2015, $10 billion was spent to maintain the exchange rate of the manat, which is a historical fact for Azerbaijan, but the national currency has fallen in value once more.

"We have survived difficult times and continue to live on. The global economic crisis that began in June 2014, the prolonged and sharp decline in oil prices created serious problems with the country's balance of payments. At that time, serious construction work was going on in Azerbaijan. There were many transfers to the state budget at the expense of oil revenues. Therefore, the sharp decline in oil prices threatened the loss of currency reserves," he said.

According to Rustamov, Azerbaijan's current account balance could reach 10 percent of GDP by 2022. He emphasized that this is possible if the world market price of a barrel of oil averages $70.

"If the oil price reaches $50, then the current account balance will be about four percent of GDP," he said.

Foreign currency

Noting that demand for foreign currency in Azerbaijan is expected to rise in February 2022, he added that the sale of foreign currency at Central Bank auctions increased in January 2021.

"This is due to the increase in expenditures of the state budget last year and the issuance of a great volume of cash in circulation," he said.

Cooperation agreement

Rustamov stated that the Central Bank intends to sign an agreement with the international consulting firm McKinsey in February and to develop a new model of financial institution development in the country. He stated that the agreement will apply not only to Azerbaijani banks but also to insurance companies and other financial institutions.

"I can say that within this document new management methods will be established, a different ecosystem will be created, problems of banks and ways to solve them will be studied, and a strategy for the development of financial institutions on the new model will be prepared," he said.

Insurance sector

Simultaneously, Central Bank Director-General Ziya Aliyev stated that the bank sees digitalization in the insurance sector as the top priority for industry development.

Noting that insurance premiums increased by 16 percent in 2021, he emphasized that this growth dynamic was maintained even during the coronavirus pandemic.

"We predict that growth will continue in the future. First and foremost, we hope to see growth in compulsory insurance. At the same time, we are working to raise awareness of insurance and insurance services. Digitalization of insurance services is one of the main directions of our activity development. One of our main objectives for the near future is to regulate the prices for voluntary insurance," he said.