Possible impact of transition of Azerbaijan to full "floating exchange rate" mode - ANALYSIS

Baku. 19 December. REPORT.AZ/ Transition to the full "floating exchange rate" mode could increase US -ollar rate in the future.

Analytical Group of Report News Agency had analyzed possible impact of "floating exchange rate" to the local currency market in Strategic Road Map for the prospects of the national economy of the Republic of Azerbaijan.

According to the analysts, after switching to the full "floating exchange rate" mode in currency auctions mainly conducted by Central Bank of Azerbaijan (CBA) and the State Oil Fund of Azerbaijan (SOFAZ) dollar rate will no longer be controlled: "In other words, which commercial bank offers a higher rate, the supply of dollars will be sold to that bank. This will lead to a sharp rise in dollar rate. After rising to a certain level, population, banks and other entities in charge of foreign exchange reserves will start selling dollars. After a sharp fluctuations dollar will find its real value. However, sharp price fluctuations in currency market expected before that."

Notably, manat sterilization conducted in last two months by CBA does not allow sharp appreciation of dollar rate.

Because, at higher rate limited amount of dollars can be converted into manats.

After the transition to a full free rate currency purchase and sale of foreign currency would be fully restored and the "black market" will no longer be needed. It is also predicted that in currency exchange, the margin will be liquidated. Official exchange rate of CBA will form in free foreign exchange market each day", the analysts said.

"The dollar exchange rate will rise to the level of 2.50 AZN/USD and then sharp fluctuations around 2.20 AZN/USD is likely to stabilize.This level will also reduce the volume of imports.Of course, inflation in 2017 will be in the double digits. It is possible to prevent an increase in inflation, with the help of strong monetary policy.But the current economic slowdown may further accelerate", - the Agency experts added.

Analytical Group of Report warns citizens to avoid developments in the currency market as much as possible also stay away from speculative operations.

Analysts say, fund transfers in the amount of 6.1 bln AZN (3.5 bln USD ) does not comply with the import volume of Azerbaijan: "Thus, 3.5 bln USD to be sold at currency auctions by SOFAZ means a reduction of 60% in imports to Azerbaijan compared with 2016, which is impossible. In best scenario Azerbaijan can reducing imports by 20% up to billion 7 bln USD." Notably, in 2016 the volume of imports declined enough in many areas.

Notably, in third quarter, SOFAZ has 1.87 bln USD of investment portfolio 1.87 billion USD and this figure could rise by year end.