FED interest rate hike not to have strong impact on Azerbaijani currency’s rate

The US Federal Reserve System’s (FED) increasing the key interest rate won’t have a strong influence on Azerbaijan’s financial market and the exchange rate of manat, President of the Central Bank of Azerbaijan Elman Rustamov told reporters May 24.

He said the FED’s decision is not a fundamental factor affecting the rate of the manat against the US dollar.

“Decisions by the FED aren’t among the main factors affecting the exchange rate of the manat,” he said. “Oil prices, dynamics of exchange rates of the currencies of Azerbaijan’s neighbors, as well as the state of the balance of payments of Azerbaijan, which by the way is now quite stable, are more fundamental factors.”

The head of the CBA said that Azerbaijan has very large foreign exchange reserves, and the reserves of the country’s central bank are at a sufficient level.

“Strategic currency reserves of Azerbaijan amount to almost 100 percent of the volume of the country’s GDP,” Rustamov said. “At the same time, despite the decline in foreign exchange reserves of the central bank, in recent months they started to grow and are now at an adequate level, and I think that they will grow before the end of the year.”

“I would like to note that it is believed in the global experience that foreign reserves of a country should cover a six-month volume of imports of goods and services, while in Azerbaijan they cover a nine-month volume.”

Strategic currency reserves of Azerbaijan exceed $38 billion, including assets of State Oil Fund of Azerbaijan (SOFAZ) as of April 1 amounted to $34.25 billion, which is a two percent increase compared to early 2016 ($33.57 billion), and the foreign exchange reserves owned by the Central Bank of Azerbaijan – $4065.8 million (given a 18.95 percent decrease during the quarter).

Referring to the dynamics of oil prices, which also affect the exchange rate of manat, head of the Central Bank of Azerbaijan said that no sharp fluctuations in oil prices are expected until 2035.

“That was mentioned in a special BP presentation on the prospects of the global energy and oil market, which was demonstrated in the Central Bank of Azerbaijan and other macro-economic institutions,” Rustamov said. “The analysis covered the period of nearly 20 years, and it was noted that oil price changes will be quite conservative, but aimed at a gradual increase. So no major changes are expected.”

More than half (51 percent) of 53 economists surveyed by Financial Times expect an increase in the base rate of the US Federal Reserve System (FED) in June or July 2016, while in early May 2016, most analysts predicted the next interest rate hike to take place not earlier than in 2017.

In December 2015, the FED carried out the first interest rate increase since June 2006, earlier, the rate remained at historically low level – 0-0.25 percent during seven years, starting from December 2008.

The next meeting of the Federal Open Market Committee of the FED will be held June 14-15.

Source: Trend