Azerbaijan raises rate 1st time in 5 years to cut inflation

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      Azerbaijan’s central bank raised its benchmark interest rate for the first time in five years but was neutral in its guidance, saying the next decision on rates would depend on the change to the balance of risk to inflation, the state of the economy and the outlook.
      The Central Bank of the Republic of Azerbaijan (CBA) raised its discount rate by 25 basis points to 6.50 percent, pushing up the lower limit of its interest rate corridor to 6.0 percent and the upper limit to 7.0 percent.
      It is CBA’s first rate hike since September 2016 when the rate was raised to 15.0 percent. 
      From February 2018 CBA embarked on a monetary easing cycle and cut the rate 17 times and by a total of 8.75 percentage points. This includes 5 cuts last year in response to the COVID-19 pandemic by a total of 1.25 percentage points, most recently in December last year.

      Azerbaijan’s inflation rate has accelerated since January and rose to 4.8 percent in August from 4.5 percent in July, within the central bank’s target of 4.0 percent, plus/minus 2 percentage points.

      CBA said its decision to raise the rate was due to the impact on the domestic economy from an “intensification of inflation” in the global economy, especially rising food and materials costs, transport and logistic costs.

      These factors are weakening the neutralizing effect of monetary policy by strengthening the role of inflation factors in the balance of risks to price stability, the bank said, adding:

      “Preventing inflation from deviating from the target on the forecast horizon will cause monetary policy to move out of the pause phase.”

      www.CentralBankNews.info