Saturday Activity of Banks Causes Stir in Foreign Exchange Market

Baku / 03.10.17 / Turan: The inhabitants of Azerbaijan know about devaluation not by hearsay. The national currency fell sharply twice - in February and December 2015. As a result of these falls, the manat dropped from the bar of 0.79 gapiks (kopecks) per dollar to 1.55 manat. Over the next two years, the manat exceeded the mark of 1.70, and most economists call it the third, smooth devaluation. After two devaluations, talk about the third one coming does not abate, and economists give disappointing forecasts, despite statements of the chairman of the National Bank Elman Rustamov that he does not see risks for the manat. It went so far that even the innocent news that all banks would work on Saturday caused panic, and people rushed to banks, buying up dollars. Why do not people believe in the national currency, what is the threat, and should we expect new devaluation?

According to the economist Natig Jafarli, the distrust of the population is quite understandable: "If the head of the body that controls the country's currency, that is, the National Bank, told the population before the devaluation that "no devaluation is expected, so do not worry," and a few days later the manat lost its value, it is natural that people"s confidence in the national currency and in the country"s financial system as a whole has weakened. This is due not only to the activities of the National Bank. Closure of several banks, problems with the return of deposits to the population destroyed confidence in the financial and banking system. Therefore people can be understood and news like Friday"s news cause panic and is perceived as a signal of new devaluation. This is a big problem for the economy. If there is no confidence in the economy, the financial and banking system, and the national currency, neither ordinary people nor businessmen can plan their affairs, make deposits and investments. This is turning into a sign that is causing great damage to the country"s economy."

The expert stressed that, given the situation with the Azerbaijani economy, the fall of the manat can begin every moment: "At the beginning of the year SOFAZ administratively allocated AZN 7.5 bn to the National Bank and at the expense of the Financial Stability Fund it is possible to maintain the stability of the manat in relation to the US dollar. The cost of the manat in relation to other currencies is falling, but in relation to the dollar, the manat rate has so far been kept. However, everyone understands that this happens in the administrative order, and the rate of manat against the dollar is kept due to certain measures."

Despite this, N. Jafarli believes that devaluation should not be expected until the end of this year, because the National Bank has been allocated a fairly serious amount of funds: "However, in December, several important decisions are expected to be taken on a global scale. An official statement has already been made about raising the interest rate of the Fed. In addition, from today, the Federal Reserve"s liquidity reduction program will be launched. This means that the Fed will return the dollar supply issued in the form of loans back from the markets. These events may cause growth of the dollar index in the world. In addition, in neighboring Turkey during the last week there was a fairly serious increase in the dollar. Similar processes in the neighboring countries do not remain without consequences in Azerbaijan and influence the rate of AZN. Therefore, at the end of the year there can be certain changes in the ratio of the exchange rate of the manat to the dollar."

The expert believes that the most troubled period will start next year: "If SOFAZ does not allocate a new amount of funds to the National Bank to maintain liquidity and support financial stability (and it will be difficult to do this because the Fund has large expenses for large projects), fairly serious changes will be expected in the AZN rate in relation to USD," N. Jafarli said. -0-