Our Analytics 5 november — 15:42

Azerbaijan stopped devaluation. But economy was left without manats (Expert analysis)



Recently, the head of the Central Bank of Azerbaijan (CBA), Elman Rustamov made a statement, in which he told about the fate of the manat, predicting its growth. This statement caused the expected concern among the population. People are used to the fact that Mr Rustamov's forecasts often come true to the exact opposite.

What are the current trends in the foreign exchange market? Does the population buy up foreign currency or sell it? For example, in neighbouring Ukraine, the country's residents have sold more than $2 billion since the beginning of the year. Apparently, people sold previously bought up dollars. What is happening in Azerbaijan?

In a conversation with Azeri Daily, banking expert Akram Hasanov noted that the rate of any currency is a question not only economic, but also psychological. 'What do we see, including the example of the world reserve currency - the US dollar? Everyone is discussing candidature for the post of the head of the Fed, because it is on his/her personality, preferences and experience the policy of the US monetary authorities will largely depend.'

According to the expert, Elman Rustamov's personality also affects the manat rate. 'Before the devaluation of the manat Rustamov was an indisputable authority in the country. Even for the opposition, which, incidentally, is not surprising: after all, for the West, the heads of central banks are some kind of agents of influence, and therefore they are never criticised there. But after the devaluation, Rustamov's authority fell sharply. During just 2015 he twice deceived the people: he promised that there would be no devaluation, but it happened, moreover, a sharp one. And in 2016, a few days before the bankruptcy of Bank Standard, Rustamov publicly promised that the bank would be saved. In short, the people quite reasonably created the view that Rustamov cannot be trusted, and all forecasts come true to the exact opposite.'

CBA head Elman Rustamov

As the interlocutor notes, nevertheless, of course, one should not think that Elman Rustamov always speaks untruth. 'As Razumikhin said from Dostoevsky's 'Crime and Punishment': 'Let us finally lie our way to the truth.' In the case with Rustamov we should not discount this phenomenon. In general, the foreign exchange market has indeed stabilised. There are a number of reasons for this. External reason: stabilisation and even some increase in oil prices. Consequently, our foreign exchange earnings and reserves, albeit a little, but are growing.

Internal cause: reduction of the monetary base. As of October 1, it amounted to 8.6712 billion manats. Or about 5.1007 billion dollars. But in early 2015 (before the devaluation), the monetary base was 11.5419 billion manats. Or about 14.7973 billion dollars. The difference is almost two times. That is, the Central Bank has simply squeezed the money supply (including reducing lending to banks) in order to prevent further devaluation and inflation. Moreover, even the existing money supply is sterilised by the Central Bank through deposit auctions, where it attracts manat funds of banks at a sufficiently high interest rate (10-14%).

For Banks, of course, it is more profitable to invest free funds in the Central Bank and receive a guaranteed decent income than to risk and lend to the real economy. That is, money revolves in the banking system itself and does not reach the real economy. In this sense, the tight monetary policy of the Central Bank really stopped the devaluation and may even further strengthen the manat for a short time. But at the expense of bleeding the economy.'

Akram Hasanov

Akram Hasanov gives an example: 'Let's say a person, having lost even 20% of blood, can die. And our economy has lost almost half of the money supply. It is known that money is the blood of the economy. It is not by chance that today we are witnessing the closure of businesses, the withdrawal of a number of foreign companies from the market, and so on. All this is the result also of the tight monetary policy of the Central Bank. Rustamov at any cost tries to keep the rate of the manat. And this really leads to the fact that people have to exchange accumulated dollars for manats. After all, there are not enough manats, so you have to buy them.

Perhaps, the last statement of the head of the Central Bank is aimed at strengthening this trend. After all, by the end of the year, objectively the demand for the dollar will increase: companies and banks will have to pay debts. Including the budget. So, Rustamov decided, just in case, to spur on those wishing to sell dollars: he says, you'll earn at the same time as well. But it is clear that the current policy of the Central Bank cannot be a long-term one. After all, the economy needs money, which means that the growth of the monetary base is inevitable.

On the other hand, it is still unknown how the oil prices will behave. If they fall, the manat will again be threatened. In addition, much will depend on the policy of the new head of the Fed. For sure, with his/her arrival, the dollar rate will grow all over the world,' stressed our interlocutor.

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