Floating exchange rate devalues Azerbaijani manat by 50%

PanARMENIAN.Net - Taking a page out Kazakhstan’s playbook, the central bank of Azerbaijan has abandoned its currency peg and floated the manat. Immediately, the U.S. dollar soared 48% against the currency, the Financial Times reports.

Azerbaijan’s central bank governor told the FT back in February that it was planning to abandon its currency peg to the dollar because the low price of oil was straining its energy-dependent economy. The currency had been pegged to the dollar since mid-2011.

“It is critical to make some kind of corrections to fiscal and monetary policy,” Elman Rustamov, who has led Azerbaijan’s central bank for two decades, told the FT’s Jack Farchy and Tony Barber in Baku, in February. “We consider that we should transit to a more flexible exchange rate regime and gradually we will transit to an inflation-targeting regime.”

Oil and gas account for 95% of the country’s exports and 70 per cent of government revenues. On Monday, the price of Brent crude hit a new 11-year low, fetching just $36.18 per barrel, almost 50% below the 2015 peak in May.

On February 16 Azerbaijan’s central bank shifted the way it values the manat, moving away from the dollar and instead to a dollar-euro basket. The result was that the manat’s value went from 0.78 per dollar to 1.04 per dollar. Today, upon floating, the value fell to 1.55 per dollar, the lowest in records going back to 1995.

The move is reminiscent of the August 20 decision from Kazakhstan’s central bank to depeg its currency, the tenge, from the dollar. It’s since lost 85 per cent of its value and last month the central bank introduced a new 20,000 tenge note.