BAKU

Azerbaijan’s central bank raised its key refinancing rate to 6.5 percent from 6.25 percent, the first rise in the last five years, amid accelerating inflation globally and a decrease in demand domestically.

The bank raised the upper level of the rate corridor to 7.00 percent from 6.75 percent and the lower level – to 6.00 percent from 5.75 percent.

The central bank had kept the rate unchanged since December 2020, when it cut 25 basis points from 6.50 percent. Last time, the rate was raised to 15 percent from 9 percent in September 2016.

“The increase in the discount rate is due to the trend of accelerating inflation in the world economy, especially the prices of food and raw materials, a decrease in demand in the domestic market and a number of other factors,” the bank said in a statement.

Consumer prices in Azerbaijan rose by 0.5 percent in August on a monthly basis after rising 0.9 percent in July. Annual inflation in August was 4.8 percent, up from 4.5 percent in July this year. Azerbaijan forecasts annual inflation at 4.9 percent in 2021, up from 2.8 percent in 2020.

Experts say that the central bank’s monetary policy is expected to focus on inflation control whilst still supporting economic recovery. Broad money is forecast to rise due to continued fiscal stimulus and resumed growth in credit to the private sector, while Azerbaijan’s exchange rate should remain stable as a renewed trade surplus takes the pressure off the manat.

Azerbaijan’s gross domestic product (GDP) grew 3.6 percent in January-August this year from a year earlier mainly backed by the growth in the non-oil sector.

Earlier this month, Azerbaijan has raised its economic growth forecast for this year – GDP is now projected to grow 4.6 percent and amount to 82.3 billion manats ($48.4 billion), up from a previous projection of 3.4 percent.

The World Bank said in June that Azerbaijan’s economic growth should be supported by the stabilisation of oil prices as well as investment and reconstruction spending.

The November 2020 ceasefire agreement between Armenia and Azerbaijan alleviated geopolitical tensions in the region, although risks to stability remain elevated.

Still, economists’ predictions as to the pace of the recovery vary. While the World Bank predicts that Azerbaijan’s economy will grow 2.8 percent this year and 3.9 percent in 2022, the International Monetary Fund’s forecast is less upbeat, forecasting 2.3 percent growth in 2021, and slowing to 1.7 percent in 2022.

Meanwhile, the Asian Development Bank said in June that growth was forecast to return in 2021 at 1.9 percent and accelerate to 2.5 percent in 2022 as demand improves at home and abroad. As consumer confidence is restored and petroleum receipts become available for public investment, growth in the petroleum industry is expected to be outpaced by expansion in the rest of the economy, it said.