BAKU, Azerbaijan, October 29. The Central Bank of Azerbaijan (CBA) has no specific target or limit for increasing its foreign exchange reserves, governor of the Central Bank of Azerbaijan (CBA) Taleh Kazimov said, Trend's correspondent reports from the event.
He made the remarks at a press conference on Thursday following a meeting on the parameters of the interest rate corridor.
Kazimov noted that when intervening in the foreign exchange market, the bank assesses the potential impact of its foreign currency purchases on manat issuance and inflation before making decisions.
According to him, the Central Bank expects to continue purchasing foreign currency in the market through the end of this year. Purchases could amount to approximately $1 billion by year-end.
“We have no target requiring our foreign exchange reserves to reach a certain level, after which we would stop purchasing currency. We expect our buying interventions to continue through the end of the year. We may purchase approximately $1 billion,” Kazimov said.
The CBA governor also addressed the functioning of the interbank money market. He said one of the Central Bank’s main objectives is to encourage banks to place their available funds with one another and increase activity in the interbank market.
According to him, banks previously preferred to place their excess funds with the Central Bank rather than with other banks. Following the decision adopted on September 23, the interest rate paid by the CBA on funds attracted from banks was lowered to 5%, making interbank transactions more attractive.
“Our goal is for banks to place their available funds with one another more often rather than depositing them with the Central Bank. Naturally, if there is demand for loans, banks can also direct their funds toward lending instead of keeping them with the Central Bank,” he emphasized.
Kazimov noted that all banks can participate in the interbank market. However, each bank has different liquidity needs: some have more available funds, while others have less.
Asked about the impact of increasing foreign exchange reserves on the economy and inflation, the CBA governor said the Central Bank had purchased $3.6 billion worth of foreign currency this year, issuing manats in return.
“However, these manat funds do not have a direct impact on the economy because they exist in various forms. If these funds were immediately put to use in the economy, they could accelerate inflation. We are not observing that at present,” Kazimov said.
According to him, one of the main channels through which additional manat liquidity could affect inflation is lending. Growth in lending, in turn, depends on the level of demand in the economy.
“We have no target or limit requiring us to stop increasing foreign exchange reserves once they reach a certain figure. Whenever we issue additional manats, we assess the potential impact on inflation. If we see no risks, we continue purchasing foreign currency,” the CBA governor added.
