Devaluation of Azerbaijani National Currency; Causes and Consequences

Devaluation of Azerbaijani National Currency; Causes and Consequences

Starting from February 21st, 2015, the official exchange rate of the dollar to the manat, Azerbaijani national currency, has been set at 1.05 manat, which is 33.86 percent more than the exchange rate set before the beginning of the weakening process of the rate. Azerbaijani national currency has been depreciated against US dollar the first time since 2006.

Central Bank of Azerbaijan has had face an dilemma to depreciate manat since the sharp dropping of crude oil price in the world market in fall of 2014; either going sharp depreciation or having gradual devaluation. In fact, Central Bank has announced that sharp depreciation would not be in the government’s agenda in the near future. Just 2 days after the Central Bank’s governor’s official declaration on not going to sharp depreciation, national currency of Azerbaijan has lost its value against to major foreign currencies by 33.86 %. Manat’s rate dropped to 1.05 from 0.78 against to US dollar.

Indeed, the sharp devaluation of the manat on February 21st 2015 was broadly in line with movements in other emerging economies. As it is, the sudden fall in the currency has undermined credibility to Central Bank and the banking system —counteracting the government’s avowed aim of boosting growth by improving external competitiveness.

The question here is that why sharp depreciation not gradual depreciation, as Central Bank has before promised, has happened. And again, why 34 % devaluation not 12-15 % which has before promised by Central Bank?..

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