New decline in Azerbaijani Central Bank’s reserves: A message for next devaluation?

New decline in Azerbaijani Central Bank’s reserves: A message for next devaluation?

The Central Bank of Azerbaijan (CBA) lost $1,186 billion US of its foreign currency reserves in August 2015 due to high demand for foreign currencies. CBA’s foreign currency reserves declined to $ 7315.4 billion US in August 2015 from $ 8501.5 billion US in July 2015. Meanwhile, slightly decline was registered in July 2015 compared with June 2015 since CBA’s foreign currency reserves declined to $ 8501.5 US in July from $ 8520.2 billion US in June 2015. CBA, in fact, lost 33.6 % of its international reserves after the devaluation of the national currency. According to the CBA’s official figures, the foreign currency reserves of the bank were $ 12 680.8 billion US just one month before the February 2015 devaluation. It was $ 11 004.4 billion US at the end of February 2015. The CBA international reserves reached their peak in July 2014 and it was $ 15 193.4 billion. CBA’s foreign currency reserves have declined double since the falling of oil price in the world market.

The main reason of CBA’s high intervention cost in August 2015 was the currency panic which happened after Kazakhstan’s national currency’s devaluation. Very high demand for foreign currency has been observed the mid of August particularly the second weekend of the month. Due to the artificial panic in the currency market, some householders purchased foreign currency with high rates those days.

Meanwhile, CBA administratively decreases volume of national currency in the currency market. CESD’s monitoring show that many currency exchange offices faces lack of the manat volume in last couple weeks. Although demand for the national currency is not increased, but volume of the manat is administratively controlled by CBA. Central Bank targets using such administrative methods to decrease a demand for foreign currencies.

CESD, however, expects that the Government of Azerbaijan will keep the manat’s current rate against US dollar within its corridor in up-coming months. Due to economic and social reasons, CBA will most likely not go sharp devaluation by December 2015. New devaluation may have negative affect on the economy, particularly on banking sector, private sector and will increase Consumer Price Index.

CESD underlines that CBA will most likely borrow foreign currency from local and international sources to keep its foreign currency reserves’ volume. The center also forecasts that demand for foreign currency will be declined in the fall of 2015 due to gradual appreciation of the manat.

© CESD, 2015

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