Where Will Manat Hunger Lead?

The Central Bank of Azerbaijan (CBA) with an enviable regularity conducts deposit auctions on the sale of foreign currencies. Another similar event was held today on May 12. According to the CBA press service, it was planned to attract AZN 250 million, but this milestone was exceeded: the demand amounted to 612.8 million manat, and the weighted average interest rate on deposit transactions concluded at the auction amounted to 12.01%. In the previous auctions the bank managed to attract 200 million manat.

The tactics of the current actions of the country's main financial regulator are based on the tight monetary policy announced at the beginning of this year and aimed at maintaining a certain level of money supply. "The goal is obvious: slow down the rate of inflation and reduce the level of devaluation. In other words, it is necessary to maintain the value of the national currency. The CBA takes all measures to prevent a third devaluation in the country. Today the situation on the foreign exchange market has stabilized largely due to oil prices, which so far remain at $ 50 per barrel," said Samir Aliyev, an expert at the Center for Assistance to Economic Initiatives.

According to some estimates, about half of the money supply in manats is at the disposal of the population and business structures, that is, these funds are spinning outside the banking system. The CBA seeks to take control of these cash flows. "Therefore, some time ago USD hype was triggered: people and entrepreneurs rushed to buy foreign currency in large quantities at a high rate. As a result, it was possible to collect extra national currency from the population and the business segment in order not to allow another pressure on the manat," S. Aliyev pointed out.

However, the Chairman of the Center for Economic and Social Development Vugar Bayramov paid attention to another important point. According to him, in Azerbaijan the share of manat supply in GDP is 11.4%. In the first quarter of this year, through deposit auctions conducted by the Central Bank, the monetary base, having decreased by 600 million manats, fell to 6.8 billion manats. According to the World Bank, in the world the share of the monetary base in GDP is 89.9%, in Central Europe and the Baltic countries - 63.3%, in Turkey - 63.1%, in Georgia - 42.1%, and in Russia - 42.5%.

As follows from the above statistics, compared to other countries, in Azerbaijan this indicator is much smaller. The main reason for the trend is currency interventions in 2014-2015 and the sterilization of the money supply, which began last year.

According to the expert, the monetary policy of the CBA has exhausted itself. Though limitation of the money supply allows regulation of the AZN rate and the level of inflation, it cuts spending in the real sector. But an effective way of anti-crisis struggle is to encourage spending on business. The increase in these costs is very important from the point of view of real sector development. The consumer must spend money so that the business develops.

"Limiting the money supply creates a deficit of the manat. And here the reverse effect works: consumers try to spend as little as possible, to save more. And if you take into account also the limits imposed by banks on the restriction on cashing, it is not difficult to describe the real borders of the manat supply. Unfortunately, tight monetary policy prevents the expansion of the monetary base, which became a brake on the development of the real sector," the expert pointed out.

What is the way out? According to Bayramov, the tactics of improving the financial sphere should be adjusted, and measures to limit the monetary base must be replaced by a policy of optimizing the base. Deficiency of the manat is not desirable from the economic point of view, not only in the long term, but also in the short term. The development of the real sector, as well as the non-oil sector is directly related to the optimization of the monetary base.