BAKU, Azerbaijan, Sept. 20
By Zeyni Jafarov - Trend:
The decision of the Central Bank of Azerbaijan (CBA) to increase the refinancing rate by 0.25 percent - from 6.25 to 6.5 percent is due to the inflation speedup, Gulnara Khaidarshina, Deputy Head of the Market Analysis Department at Russian Gazprombank, told Trend on Sept.20.
According to Khaidarshina, another factor for the increase is the recovery of economic activities following the global economy.
She said that it was expected a one-time, but more significant increase in the discount rate - by 0.5 percent from the previous 6.25 to 6.75 percent, however, the Central Bank of Azerbaijan decided to maintain a more cautious approach and gradually raise the rate.
“The limits of the interest rate corridor were also raised by 0.25 percent: the upper limit - from 6.75 to 7 percent, and the lower - from 5.75 to 6 percent,” the expert noted. “The balance of risks shifted significantly towards accelerating inflation, which required a rate increase. We expected a more significant increase of the rate - by 0.5 percent so that ensure positive real interest rates would be ensured, but the Central Bank of Azerbaijan has taken a softer approach.”
As she noted, current monetary conditions in Azerbaijan raise the likelihood of inflation deviating from forecasts.
At the same time, according to her, against the backdrop of increased external inflationary risks, the Central Bank revised its inflation forecast for late 2021 far beyond the target range - from 4 +/- 2 to 7-7.5 percent.
Besides, external inflationary pressure from the rise in prices for raw materials and imports from trading partner countries, as well as from the rise in the cost of logistics, will be restrained by the current account surplus, which will help maintain a stable exchange rate of the manat, Khaidarshina added.
"Given the signals of the Central Bank of Azerbaijan about the observed recovery of economic activity and the emergence of risks of inflation deviation from forecasts under the current monetary conditions, we don’t exclude a further increase in the rate at the next meetings. In this regard, we forecast an increase in the discount rate by the end of the year from 6.25 to 6.75 percent,” concluded the expert.
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