Azeri currency under pressure as demand for dollars grows - Reuters

24.08.2016 09:31

Azerbaijan's central bank pledged on Tuesday to support the country's banks and currency and called fears of another devaluation groundless.

The verbal interventions come after two devaluations last year cut the value of the Azeri currency, the manat, in half against the dollar. It is now close to its lows for this year, as banks and consumers buy up dollars.

Azerbaijan gets three-quarters of its revenue from oil exports, and the plunge in oil prices over the past two years has hit it hard. The country burned through more than half its reserves in 2015 to prop up the manat, and in December, the central bank moved the currency to a managed float.

"The sales of foreign currency by the State Oil Fund (SOFAZ) will continue," Namig Aliyev, the central bank spokesman, told Reuters. "Rumours about devaluation are groundless."

But foreign currency demand at the central bank auction on Tuesday was $604.5 million, and SOFAZ offers just $50 million at twice-weekly auctions.

On Tuesday, the manat traded at 1.6245 per dollar. That was down some 8 percent from early June, before the currency started to slide. Officials admit that foreign currency demand has been lately far exceeding supply.

"Dollarisation is very high - 76 percent of all deposits are in dollars, which means that confidence in the manat has not been restored," Samir Aliyev, an independent expert, told Reuters.

Earlier this month, the Azeri central bank raised its key interest rate for the third time this year, to 9.5 percent, the highest since 2008, in a bid to support the manat and encourage manat deposits.

According to the budget, SOFAZ's total transfer to the state budget this year is set at $4.7 billion. It has already sold $3.2 billion in the first seven months of this year. The fund's transfers are used for sales at auctions. Some currency is sold by the central bank itself.

The higher demand for the dollar could make commercial banks limit its sales to clients - already capped by the central bank at $500 earlier this year.

"We sell foreign currency according to a limit - not more than $500 to each person a day," said a representative of Azerturk Bank, who did not want to be named.

"Summer months were relatively fine, but the situation has changed this week. We have not reduced this limit, but if situation does not change we will have to do it," he said.

Local businessmen also face problems.

"I need to transfer dollars to my partners and need to buy $4,000, but I can't do it," Asef Verdiyev, a pharmacological company owner, told Reuters.

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