Our Analytics 7 january — 15:38

Again about manat and Elman Rustamov (Our comment)



Under the curtain of the last year, the Central Bank of Azerbaijan revealed the main directions of its monetary policy for 2019 and the medium term. This, frankly, is a very painful question for a country whose population is already afraid of all sorts of socio-economic fluctuations associated with rising inflation, the depreciation of the national currency and other financial factors, from the destructive embrace of which we just escaped. And it is not by chance that this statement of the Central Bank has therefore caused quite wide discussions in the press and expert circles.

Some were praising the Central Bank’s forecasts aimed at strengthening social and economic stability, while others, on the contrary, clutched at any flaws in them in order to prove the unreality of this policy as a whole.

Who is right after all?

In its statement, the Central Bank notes that in the past year significant work was done to improve macroeconomic stability in the country. Inflation stabilised at a low single-digit level, economic growth continued, the national currency rate was stable, and the country's strategic foreign exchange reserves continued to grow. On such a foundation, the main bank of the country decided to build its monetary policy in 2019 and in the medium term. This policy will be aimed at creating a sustainable socio-economic environment based on low and stable inflation, which will accelerate further economic growth. A seemingly normal wording, but one fine detail makes a well-known banking expert, Akram Hasanov, to have doubts. By the way, other experts pay attention to it too.

Thus, the monetary policy of the Central Bank for 2018, according to its own statement, was aimed at ensuring the price stability of the national economy, creating favourable socio-economic conditions for the life and business activity of the population by ensuring low and stable inflation. And now the main bank gives a forecast on inflation, but does not make forecasts on the manat rate, while indirectly noting that, naturally, inflation will depend on the exchange rate.

The logic of the expert is simple, Azerbaijan imports a significant part of goods and products from abroad. With devaluation, their prices will rise, ensuring a high level of inflation. Hence, the CBA is simply trying to be on the safe side: if problems with the exchange rate begin, they will refer to the inflation forecast with the proviso that it depends on the exchange rate of the national currency.

Rate forecasts, especially for the manat, the quotation of which is highly dependent on oil prices, is an ungrateful task. Naturally, the Central Bank, which does not have accurate information on oil prices, cannot be an exception in this regard.

Oil is to blame again

Moreover, last year, when the statements of the CBA and experts were made, ended with very alarming trends for oil indices. And no one can rule out that this trend may recur, which is fraught with a decline in foreign exchange earnings and the rate of the national currency and inflation. And the world economy as a whole behaves inadequately, indices on the stock exchanges do not predict anything good. They promise difficulties in the coming year for the global economy. Under this set of circumstances, it is difficult to imagine what the rate of the manat will be like. Taking into account all this, Hasanov considers that the inflation rate will be higher than the Central Bank believes, even if oil prices rise slightly. And the reasons for high inflation can be both purely monetary and fiscal.

There is a point in the reasoning of the expert, of course, and very significant one too. How does the Central Bank explain its forecasts? The statement by the agency clearly states that the monetary policy in 2019 will be aimed at keeping the average annual inflation (the government forecasts average annual inflation at 3.8%) at 4% (plus or minus 2%), for which it is planned to use monetary policy tools. Moreover, the Central Bank emphasises that low inflation is important for maintaining the stability of the national currency. The calculations of the Central Bank show that the increasing effect of the weakening of the manat on inflation is much higher than its lowering effect. And this, in turn, will require a balance between supply and demand in the foreign exchange market. The demand for the currency will be formed on the basis of imports, the balance of capital accounts, the volume of external debt and its servicing, as well as the international situation. Therefore, the rate of the national currency is the main condition for ensuring price stability.

Yes, long-term practice shows that the country's chief banker conducts a very cautious monetary policy. As for specific predictions, here he does not give exact numbers or dates at all. One remembers how throughout the past year, Elman Rustamov constantly claimed that the manat would not weaken by the end of the year, but did not predict its rate. As a result, the manat until the end of the year maintained its stability at 1.7 manat per $1. And Elman Rustamov would not be Elman Rustamov, if he, instead of an indirect hint at stability, would have voiced a specific figure. And this just confused the experts who wished to compare their own research with the calculations of the Central Bank.

The media always prefer the clarity and transparency of the calculations of independent experts to flowery and not quite understandable statements by officials and government agencies - they are more understandable to the reader. Azeri Daily does not stand aside from its colleagues. We find expert's open arguments more understandable  than official statements of the Central Bank, from which it is difficult to extract the essence of the issue. We have already written a lot that it would be nice for the country's main bank to more fully disclose the details of its periodic reports, to expand and simplify their content. But, apparently, the Central Bank does not intend to change its traditions, which often leads to misunderstandings. It's a pity. These omissions, over-cautiousness, attempts to conceal or hide something cause fair criticism. But one can prepare reports and statements so that experts are not bothered by the hidden subtleties, but by their essence, around which it is worthwhile to breed discussions.

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