BAKU, Azerbaijan, October 22. Azerbaijani
Central Bank’s refinancing rate is expected to remain on hold over
the medium term, the Dutch ING Group said in its latest report.
“Inflation risks have recently shifted somewhat to the upside,
as food prices and higher global transport and commodity costs have
renewed pressure on Azerbaijan’s producer price index. However, the
exchange-rate peg remains a strong nominal anchor, limiting
pass-through to consumer prices. With CPI still within the 4±2%
target range, we expect the refinancing rate to remain on hold over
the medium term,” the report reads.
However, according to ING analysts, further imported inflation
linked to developments in the Middle East is the main upside risk,
given Azerbaijan’s trade exposure to the eurozone and other
economies sensitive to global cost input pressures.
“For now, further policy adjustment appears unnecessary unless
price pressures become materially more persistent and tip the CPI
sustainably above 6%,” says the report.
On September 23, the Central Bank of Azerbaijan kept its key
rate unchanged at 6.5% and the upper bound of the interest rate
corridor at 7.5%, while cutting the lower bound by 0.5 percentage
points to 5%.
The decision on the parameters of the interest rate corridor
took into account actual and projected inflation trends,
developments in the foreign exchange market, changes in the banking
sector’s liquidity position and recent trends in global monetary
conditions.
The reduction in the lower bound of the interest rate corridor
is aimed at encouraging trading in the interbank money market amid
excess liquidity in the banking sector. The widening of the
corridor is expected to encourage banks to conduct more active
transactions among themselves by reducing the CBA’s participation
in the money market.
