EXCHANGE RATE STABILITY

Fluctuations in foreign exchange markets in late 2016 - early 2017 have intensified rumors about the third wave of devaluation of the Manat. Many experts believe that the transition to full floating exchange rate policy, coupled with the developments in foreign exchange markets stated among the priorities of the monetary policy of the Central Bank of Azerbaijan was nothing more than a process of "soft" or creeping devaluation. In January 2017, Manat’s value decreased by 7.8% falling to ₼1.92 per $1. A number of importers, who have immediately started selling goods to retailers based on exchange rate of ₼1.9.

Given that fell to 13% for the full course of 2016, some experts began to talk about "the catastrophic drop." The more optimistic among them predicted achievement rate of ₼2.5 per dollar in the near future, while others predicted a rate of almost ₼3-5. But the first two weeks of February were a real cold shower for such predictions - Manat appreciated from 1.92 to 1.7296 per dollar, or 10%.

According to some experts, the strengthening of the Manat was due to the adoption of a number of administrative measures against bankers. Until recently, representatives of the banking sector were considered the elite business community and virtually control their activities, except for the Central Bank, from other government agencies was very limited.

Moreover, the Central Bank was able to form the image of Azerbaijani banks, which have gone through in this direction according to international standards, while the rest of the business is far from the standards.

Early 2017, was the banking sector was exposed by the President Ilham Aliyev sharply criticized. "Last year, the measures related to transparency, apply the penalties and administrative measures have been taken important steps aimed at improving the banking sector, increased control, accepted. The greatest blow to our economy caused the banking sector. serious steps towards clearing, improvement, transparency of the sector So this year will also be taken to bring it into line with international standards. Persons who violate the law, and will continue to wage a serious fight," said President ALiyev at a convention of the Cabinet of Ministers dedicated to socio-economic development in 2016.

Later Azerbaijan Deposit Insurance Fund (ADIF) distributed the information that the Fund staff in bankrupt banks revealed criminal component in the activities of some persons working in managerial positions.

Prior to the beginning of the liquidation process in the actions of the leaders of a number of banks committed abuse of office, forgery and fraud. So, to sell the bank customer property in respect of arrears, they appropriated the funds, or only partially directed them to pay off the loans, thereby significantly deteriorating financial position of the client. At the same time revealed the facts of registering credits to individuals, not to apply to a credit institution by means of numerous forged signatures, which ultimately caused major damage to the banks.

Tighter controls and the launch of investigations against the bankers has probably made a number of credit institutions, who decided to stop speculation in the currency market.

As a result, barrier speculation by bankers in early February, significant amounts of dollars in currency trading, derived from the State Oil Fund, were not in demand. The fact is that after the holidays business, as a rule, somewhat reduces the speed, which naturally decreases and currency requirements. And with the lack of currency speculation resulted in increase of manat’s exchange rate.

In addition, the beginning of the current year was quite successful for the national economy, gross domestic product grew by 0.8% compared to the same period last year, after falling by 3.8% by the end of 2016 in January 2017.

In January, the budget was formed based on a surplus of ₼318.7 million, which is 6.1% of GDP. The government support to exchange rate of manat was also provided through the statistical data of the State Customs Committee, which showed a foreign trade surplus of $354 million in January.

The current factor of stabilization of the national currency and the role played by the rise in oil prices on world markets compared with the statistics of the previous year. After a number of countries, agreements on reduction of production in oil prices has long been held at around $55 per barrel.

Therefore, despite the decrease in the volume of oil supplies in January 2017 by 17% compared to the previous year, exports grew by 21% in value, reaching $663 million.

But what can we to expect from the exchange rate of manat in the near future? The expert opinions are very different with this regard: some believe that manat will strengthen to ₼1.65 for a dollar while others claim the weakening of up to ₼2.5.

According to expert Samir Aliyev, more predictable would be a corridor of ₼1.7-2.0. This would contribute to ₼7.5 billion transfer to the State Oil Fund of Azerbaijan to ensure the maintenance of macroeconomic stability in Azerbaijan. Considerable devaluation of the manat negatively affects the situation in banking sector, which already is not in the best condition.

In this case, the expert forecasts coincide with the expectations of the international rating agency Fitch Ratings, predicts that the rate of national currency in the years 2017-2019 at the level of ₼ 1.89 to the dollar.

However, for businesses today one thing is important only: manat is stable and exchange rate sails smoothly, not drowning."

The business community must have a clear vision on manat’s exchange rate to make specific plans, especially when it comes to middle and long-term projects. Also, the stability in the trade network will enable businesses to forecast prices of imported goods and public demand for such goods. In any case, another devaluation of the manat may increase inflation rates and put an end to government's plans on the reduction of inflation rates.

It is therefore important that the Central Bank, responsible for monetary policy, is able to ensure not only macroeconomic stability but also keeps the exchange rate within 1.7- 2.0 ₼ / USD.