Currency market in Azerbaijan: Challenging environment for the national currency

Abstract

In August, the exchange rate of national currency of Azerbaijan-“Manat” beat all historical records. That is to say, the exchange rate was 1 USD= 1.61 Manat in previous month 1. It should be noted that, the exchange rate hit 1 USD= 1.6 Manat in March, 2016 2. Since the second half of 2014, due to the fall of oil prices in the world markets there is a visible pressure on the national currency ‘Manat’. Overall, the Azerbaijani “Manat” lost 49.6% of its value in 2015 and in addition, a depreciation of more than 3% in the first 8 months of 2016, the losses could reach 52.2%. Although the occurring rapid dollarization and the observed stagnation in the business environment especially in imports in the first months of 2015 and 2016 resulted in short-term reduction in foreign exchange demand in the March-May period of this year and strengthening the exchange rate of USD/Manat at the level of 1.49, the process of depreciation proceeded again afterwards. As a result, the national currency increased its annual losses to the level of 5.5% in June-July, by depreciating 7% against the US dollar again.