Report experts: Manat may drop further by 20-25%

Baku. 22 December. REPORT.AZ/ Real effective exchange rate of national currency of Azerbaijan was equal to 91.2 points as of November 1, 2016. 

Report informs, referring to the official statistics of Central Bank of Azerbaijan (CBA), the Real Effective Exchange Rate (REER) of AZN again increased from 87,0 points during August-September.

Real effective exchange rate measures the value of a currency against a basket of other currencies; it takes into account changes in relative prices and shows what can actually be bought. An increase in REER implies that exports become more expensive and imports become cheaper; therefore, an increase indicates a loss in trade competitiveness.

The chart below shows the REER of manat since 2000.As seen since 2008, the REER appreciated. At that particular time there was a necessity in the process of lowering the exchange rate. Because it did not happen, then sharp devaluations occurred.At present, REER has begun to rise again, and it is impossible to avoid it.

Currency wars around the world makes it necessary to depreciate manat. As long as the hegemony of the dollar in world currency market will continue manat will get cheaper.As seen in the chart, the REER in 2003-2005 was lower than 100. During that period, oil price was equal to 30-50 USD/barrel.It is clear here that manat needs to fall by another 20-25% against US-dollar.

Analytical Group of Report analyzed imports from the main trading partners of Azerbaijan.According to the official statistics of the State Customs Committee, in first 11 months of 2016, Russia is one of the major importers to Azerbaijan (1.37 bln USD). Turkey is the second with (1.07 bln USD), while China is third (636 bln USD).

Imports from EU in first 11 months amounted to 2.07 bln USD, while from Great Britain - 470 mln USD. Apart from Russia currencies of all trading partners of Azerbaijan including euro fell against the dollar.

Thus, the Turkish lira in October by 4% compared to the dollar, the Chinese yuan fell by 1.8%.

During November lira decreased by 12.6% and yuan by 2.7%. As for the exchange rate of manat against dollar it has decreased by 1.3% in October and 5.7% in November.In October and November, the euro has weakened more than 7% compared to the dollar.The British pound fell by 4% in the October-November and after the "Brexit" on June 24, the pound devalued by 20%. Apparently, manat significantly expensive compared to the currencies of its major trading partners.

As for the ruble, since 2014, the ruble has sharply decreased 2 times.Currently, this currency in a bit of normalization process. Notably, after the financial crisis of 1998, the ruble has been devalued 11 times. During this time, manat preserved its stability.

Analytical Group believes, as currencies of major trading partners will continue to decrease, pressure in manat will grow up. Thus, Azerbaijan does not have the same high oil revenues. For this reason, the flow of currency from country creates serious problems.According to customs statistics, at the end of 2016, decline was observed in imports to Azerbaijan compared to the previous years.

Notably, the current official exchange rate is equal to 1.7575 AZN/USD.

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