New Decline in the Azerbaijan’s currency reserves

New Decline in the Azerbaijan’s currency reserves

The Central Bank of Azerbaijan (CBA) has reported that foreign currency reserves declined from $ 8.52 billion US in June 2015 to $ 8.43 billion US in July 2015. Decline of CBA currency reserves in July 2015 totaled $18.9 million US (-0.2%). In 2015 their fall is still $5.257 billion US (-38.2%). Since August 2014 they have fallen by $ 6.69 billion US (-44%). For comparison, CBA currency reserves reached $ 15.19 billion US (absolute record) by 1 August 2014.

Reminded here that growth in the currency reserves has been registered for between May and June (for the first time since 1 August 2014) has turned out nondurable and their falling resumed in July.

In 2014 they dropped by 2.8% ($393.7 million). In accordance with CBA forecast, by the end of 2014 currency reserves should have reached $16 billion US, but the forecast was made before the world oil prices fell.

CESD experts mentioned that even though there was marginal decline, last figures are not a good message for the money market. The manat’s rate is almost stable since the last devaluation of the national currency, February 21, 2015. However, due to decline of the currency reserves and crude oil price, there are still risk for future of manat. Meanwhile, share of Azerbaijani foreign debt in the GDP has been increased from 8.0 % to 12.0 %.

The question, again is whether the manat will be re-devaluated again in the light of losing of the country’s currency reserves?

According to the CESD experts, there is a need to look at the various scenarios. The optimist scenario is related to the raising of the oil price in the world market. If the price of oil in the world market raises, strengthen national currency rate will be observed in the second half of 2015. Of course, the strengthening of the national currency in this case, does not mean that the manat will be appreciated to the previous rate. If oil price increases to $ 90-100 US per barrel then the manat would appreciated to 1 dollar= 0.95 manat ratio. However, CESD accepts that this scenario is less realistic one. The second scenario is based on oil prices of $ 45-60 per barrel which matches to the current situation. In this case, the central bank will try to change the exchange rate within the corridor by the fall, 2015. The CBA’s corridor is about 5.0 %. This means that the change in the range of 1 cent to $ 1,0 equals 1.04-1.06 manat. This is a intermediate scenario. Pessimistic scenario is that the price of oil in the world market has fallen below $ 40 US per barrel. The Central Bank has announced that this is a cutoff line since the country’s balance of payments would have a deficit instead of surpluses in this case. If the world market price of oil falls below $ 40 US per barrel, then more currency will leave the country rather than received. In this case, it is inevitable devaluation of the manat. At that point, the manat will be re-devaluated by around 20.0 % by the end of 2015 or early next year.

In his words, the national currency’s future directly depends on crude oil price in the world market. News from the stock exchange are still pessimistic.

© CESD, 2015

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