Vugar Bayramov: "In 2015, Inflation Projected at 10%"

The Central Bank of Azerbaijan on Monday decided to refuse binding AZN to the US dollar and the transition to the two-currency basket with dollar and euro in determining the rate of the national currency. This led to panic and hype among the population and queues of people wanting to change manat for dollars appeared at bank exchange points.

The expectations of what will happen to manat in the future, the currency in which the people should keep their money on bank accounts, and percentage of expected inflation in the country were commented on by the Chairman of the Center for Economic and Social Development (CESD), scientist and economist Vugar Bayramov .

- The statement of the Central Bank of Azerbaijan has made a stir among investors, and many people ask the eternal question: "What to do?"

- The statement of the Central Bank of Azerbaijan about changing the hard peg of the national currency to the dollar and peg the manat to the basket contributed to serious concern among the population. Since December last year, investors have begun to transfer their deposits into dollars. And the recent days were almost unheard of – queues are observed in the exchange points, the demand for the dollar rises, in some of them US currency ended for a few hours. In the country there is a need for devaluation, as the manat strengthened. Naturally, the softening of the manat will increase the export capacity of the country, increase revenues to the state budget. However, at the same time, the devaluation of the manat should not lead to the devaluation of AZN savings of the population.

- How much cheaper will the manat become? What are the forecasts?

- Based on the statements of the Central Bank of Azerbaijan on the devaluation of the manat and the formation of the currency basket in 2015, we expect mitigation of AZN by 10 percent. Most likely, the rate of the manat will be closer to the euro. If the rate of the manat-euro changes, it will be automatically followed by changes in the exchange rate of the manat-dollar. The dollar may rise to 0.88 manat.

- In what currency do you think people should keep their money? Is it not risky to leave money on bank accounts?

- I consider it advisable to use the currency basket - keep the money in three currencies: the dollar, the euro and the manat. The principal amount of money should be kept in dollars, i.e. 70% of the funds should be transferred into dollars, and the remaining 30% - in the manat and the euro. Thus, the investor will protect himself from losing money. In a pinch it will compensate for the difference in the case of a change rate of manat-euro or dollar-manat. I would advise investors not to keep in the same bank more than 30 thousand manat and not to be fooled by high deposit interest.

- Tell me, what acquisition will be most profitable in 2015: real estate or jewelry?

- In 2015, a fall in prices of real estate is predicted, the demand for apartments is falling, which, of course, affects the value of apartments. Based on the fact, I think it inappropriate to invest in real estate. Also in the future there can be a decline in prices of land. But in this case there is a catch. At this point in Baku extensive work is conducted on restructuring and the majority of residents of houses demolished use the issued compensation to acquire relatively cheap land near Baku for the construction of houses. It is likely that these lands will soon rise in the price as there is demand for them, and demand creates a high price. About jewelry and precious metals, in general, it is inappropriate to buy jewelry, because it could not be sold at the same price as it was bought. It makes more sense to invest in gold bars as the price of this kind of gold is always stable.

- Another issue that is urgently on the agenda, what kind of credit transactions are worthy at the moment?

- I would advise to take out loans in manat. If there is a devaluation of the manat, then it will be easier to repay the banks. Will the banks give loans in manat? Providing loans in dollars is very risky for banks. In fact, after a rise in price of the dollar it will be more difficult for the borrower to repay the bank. Banks should be careful not to be interested in the issue of long-term loans for large sums.

- What are the forecasts for the coming inflation due to the soft devaluation of the manat?

- CBA forecasts inflation of two to eight per cent. However, if the manat continues declining, we expect inflation to 10 percent. Naturally, greater appreciation will affect food and usually in such cases the population tries to stock a large number of foodstuffs. Mitigating of the manat will affect the price of imported goods in the country. Here is a simple example. If before the devaluation of the manat the imported goods cost the entrepreneur $1, i.e. he spent 0.78 manat and sold the commodity at 0.85 manat, now it is projected that his expenditure for the purchase will increase to 0.88 manat, so respectively, the price of the product on sale will rise to 0.95 manat.

- Thanks for the interview.