At its upcoming meeting on June 21, the Central Bank of Azerbaijan (CBAR) is expected to hike the refinancing rate by 25 bps to 9.25% and then pause in monetary tightening until year end, said Gulnara Khaidarshina, chief CIS economist, deputy head of research at Russia’s Gazprombank, Report informs.
“We see the following arguments in favor of such a decision: 1) a steady slowing of inflation, which nevertheless still exceeds the refinancing rate; 2) a stable but still elevated level of dollarization of household deposits; 3) growth in the money supply amid stimulatory fiscal policy; and 4) expansion of domestic demand,” she noted.
“Given the steady deceleration of inflation, we do not rule out that the tone of the press release will be softened. At its May meeting, the CBAR continued to tighten monetary policy, raising the rate by 25 bps to 9%. In addition, in order to fine-tune monetary conditions, the Central Bank raised the lower and upper bounds of the interest rate corridor by 50 bps and 25 bps to 7.5% and 10%, respectively, thereby expanding its capabilities with regard to regulation of lending activity and maintaining the attractiveness of AZN deposits,” she added.
In the aftermath of the previous meeting, the CBAR confirmed its commitment to anti-inflationary monetary policy. Among inflationary factors, the Central Bank mentioned the expansion of aggregate demand amid stimulatory fiscal policy. Commenting on the further rate trajectory, the CBAR noted that it will consider the possibility of pausing rate hikes with a subsequent move to rate cuts, should inflation continue to decelerate amid better forecasts, she said.
“Given that inflation is slowing down and approaching the level of the refinancing rate, the CBAR is already close to the end of the rate hike cycle and may proceed with this year's final rate hike at its June meeting. Thereafter, prerequisites may form for a pause in monetary tightening at subsequent meetings.”