BAKU, Azerbaijan, October 15. Each additional
$10/bbl increase in oil prices could boost Azerbaijan’s annual
exports by 2-4% of GDP, says the Dutch ING Group.


“Azerbaijan is more stable: higher oil prices reinforce its
buffers, while the manat peg limits imported inflation. With CPI
within the 4±2% target range, we expect the policy rate to stay at
6.50%,” the ING said in its latest report on October 15.


ING’s base case for the regional rates in CIS-4 (Azerbaijan,
Armenia, Kazakhstan and Uzbekistan) and currencies remains
constructive and domestically-driven.


“But resilience to more persistent global inflation and higher
core rates could be put to the test through the exchange rate
channel. While we don't expect a sell-off, high real rates will be
required to keep attracting portfolio inflows,” says the Dutch ING
Group.


ING notes that each additional $10/bbl could lift annual exports
by 2-4% of GDP in Azerbaijan and Kazakhstan, although the FX effect
is constrained by Azerbaijan’s peg and Kazakhstan’s export volumes
and dividend-outflow dynamics. For Armenia and Uzbekistan, it would
add around 0.5% of GDP to import costs.


As for inflation, the Group notes that global food prices are
already 6% higher YoY and it estimates that each 10% increase could
add around 1ppt to the inflation trend in Kazakhstan and Uzbekistan
and 1.5-2.0ppt in Armenia and Azerbaijan.







“Broader exposure to imports from developed markets and the
Middle East ranges from 26% in Armenia and 35% in Kazakhstan and
Uzbekistan to around 45% in Azerbaijan,” says the report.


Moreover, ING Group notes that higher core yields would weaken
carry-driven support for the tenge and soum, reducing their
insulation from imported inflation.


“But domestic buffers argue against an indiscriminate sell-off:
Kazakhstan has high real rates and a backlog of state FX sales;
Uzbekistan will be catching up on delayed gold exports; Armenia can
fall back on its remittance inflows and comfortable reserves; and
Azerbaijan can rely on its exceptional sovereign assets.


In an adverse global scenario, we therefore see 1-2 ppt upside
risk to our medium-term inflation outlook. The cost-driven nature
of the shock may not require an immediate policy response, but
central banks may need to protect real rates: Armenia could tighten
further, Kazakhstan and Uzbekistan have less room to cut, and
Azerbaijan’s reluctance to hike could be challenged,” reads the
report.