Our Analytics 13 january — 12:00

Chamber was given to Elman Rustamov: What's next? (Our comment)

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BY MAMMAD EFENDIYEV, ECONOMY SECTION

In the early days of the year, Chairman of the Central Bank of Azerbaijan (CBA) Elman Rustamov took part in a meeting between representatives of the National Confederation of Entrepreneurs (Employers) Organisations with entrepreneurs and bank managers. The reason for this was compelling: the transfer to the Central Bank of Azerbaijan of the powers of the liquidated Financial Markets Supervision Chamber was completed. What does this promise to business that is sensitive to any changes in the financial market?

And business received an answer to its questions. The country's chief banker said that the priorities of the Central Bank in 2020 are the development of the financial sector, ensuring its stability, completing the restructuring process, as well as expanding and supporting the stability of the insurance sector, applying the principles of open banking, and developing business lending. So, the majority of bank loans (with a general increase in lending) are in consumer loans, and business lending is growing at a slow pace. Nevertheless, the financial sector in the country has intensified significantly.

Elman Rustamov, however, is unhappy

For example, the Central Bank plans to complete the 7/24/365 project this year. As a result of this project, the country's payment system will work without interruptions, which will benefit both the banking sector and business. In the same year, it is planned to launch a non-stop instant payment system for legal entities and individuals. Last year, the number of non-cash transactions grew by 41%. This is a fairly high dynamics, 20 times higher than the economic growth in the country. Their share in the total amount of payments was 20%, and the instant payment system will contribute to the growth of non-cash payments and will be convenient for all participants, both entrepreneurs and banks. By the way, over the past 5 years, the share of non-cash payments in card transactions has increased from 8% to 20%.

This is good dynamics, but it does not satisfy the chief banker; he intends to take steps to improve the ratio in favour of cashless payments. To this end, further development and modernisation of payment systems, the use of the latest technologies and platforms, including block-chain technologies, are planned this year. The Central Bank intends to invest in such projects, as well as in IT infrastructure. Another priority for the CBA will be the creation of principles and standards of open banking to expand the coverage of innovative financial technologies.

And, of course, E. Rustamov could not get around the topic of inflation and the manat rate, which worries every Azerbaijani, not excluding entrepreneurs. According to him, this year it is planned to maintain macroeconomic stability, one of the elements of which is to keep inflation low. Inflation targets do not change: this is inflation at the level of 4% plus/minus 2%. But in general, the goal of the Central Bank is to keep inflation at 4%, which corresponds to the situation over the past three years. And as part of ensuring macroeconomic stability, the Central Bank will maintain the stability of the national currency. And this means that, apparently, the course of the manat, which this year was to be set into free sail, will remain regulated.

Rustamov also brought clarity to the issue of manat devaluation, as experts sometimes remind. The dynamics of the manat rate this year will be one of the important conditions for low inflation. A number of domestic and global risks may affect the achievement of inflation targets in 2020. Among the global risks that Baku can hardly influence, first of all, should be noted the global economy falling below expectations, continued protectionism and possible fluctuations in oil prices in the context of geopolitical instability. And the main banker sees internal risks in expanding the money supply as a result of fiscal activity and fiscal deficit, inflationary expansion of consumer loans, as well as asymmetric expectations.

In contrast to the global risks, the Central Bank has appropriate levers for regulating internal risks, which, as life shows, are effectively used. Suffice it to say that the large-scale expansion of the money supply at the end of the year as a result of the growth of the minimum wage and pension, compensation for bad loans and other benefits to the population practically did not affect the inflation rate. And the Central Bank itself today no longer uses foreign exchange reserves to maintain a stable manat rate, but, on the contrary, withdraws foreign currency from the market, as a result, its foreign exchange reserves are growing. Foreign exchange reserves and the Oil Fund are growing. And the country's total reserves have already exceeded $51 billion, which is 5 times higher than the country's external debt and is equivalent to the country's annual GDP. And with such reserves, life, as they say, is not frightening, which, one thinks, convinced the entrepreneurs.

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