A decline in the Central Bank’s reserves and growth in demand for foreign currency in Azerbaijan: What’s next?

Abstract

Demand for foreign currency auctions is increasing, foreign currency reserves of the Central Bank are decreasing and the Manat money base is getting smaller. These developments occurrence raises a question in the minds of stakeholders: will the current status quo of the exchange rate remain? How will the observed depreciations of neighboring countries’ currencies affect Azerbaijan’s non-oil exports? Will the current price of oil lead to changes in the monetary and fiscal policies of the government? In this research paper the latest trends in the above mentioned developments will be briefly analyzed and the monetary and exchange policies of the Central Bank, as well as the fiscal policy of the government, will be evaluated from the point of view of exchange markets. Along with these, potential short and middle-run scenarios which may arise from the government’s exchange rate policy will be given at the end of the paper.