The reduction in dollar reliance in Azerbaijan’s economy reduces exposure to significant volatility in the foreign exchange market, and in turn, reduces external vulnerability risks to the credit, Moody’s said, Report informs.
According to Moody’s, dollarization in the financial system continues to fall as prudential measures on banks' foreign currency exposures tighten:
“Concurrently, improving the quality of financial sector regulation fosters greater resilience in the banking sector, reducing contingent liability risks to the government. Asset quality across the banking sector has continued to improve in recent years through a variety of shocks, while high provisions offer significant shock absorption capacity. Capital and liquidity positions have remained robust as well, which we expect to strengthen further as Basel III standards are gradually phased in.”
“Over 2022-23, we observed greater efficacy in monetary policy tightening than during previous shocks, reining in inflationary pressures through greater frequency of rate hikes at lower intensities. Improved effectiveness and credibility of monetary policy reflect reforms that enhance transparency in policymaking as well as greater proactiveness in monitoring and managing macroprudential risks. Recent and ongoing efforts to improve monetary policy transmission through the introduction of a new operational framework late 2022 speak to reform commitment, which should further enhance policy effectiveness and pave the way for the transition to an inflation-targeting regime in the longer term,” Moody’s said.