(Adds details, analyst's comment, background)
By Nailia Bagirova
BAKU Jan 12 Azerbaijan has dropped an exchange
rate corridor and let the country's manat currency float freely,
the central bank said on Thursday, in a move to save state
reserves from depleting.
The central bank said it scrapped a requirement for
commercial banks to buy or sell manat at a range of no
more than 4 percent from the officially set exchange rate.
The move to let the market to set its own exchange rate
comes amid recovery in prices for crude, the main source of
income for the former Soviet republic. Expectations that the
global oil glut will gradually disappear later this year support
the timing of the move.
The central bank's decision is likely to send the currency
to fresh lows but, in the longer term, it should bode well for
its stabilisation, analysts say.
The manat may stage some "overshooting", weakening beyond
fundamentally justified levels against the dollar in what would
be the market's initial reaction to the central bank's step,
said Yaroslav Lissovolik, chief economist with the Eurasian
Development Bank in Moscow.
"After being kept in the corridor, the manat could have been
overvalued and had accumulated some potential for weakening.
External conditions, however, may keep it from excessive
easing," Lissovolik said.
The central bank set the manat's official rate at its
weakest ever of 1.7867 after announcing the decision to scrap
the corridor. Banks in Azeri capital Baku were selling the
dollar even higher, saying they were aware of the range removal
"We knew about this decision a year or year-and-a-half ago.
It seems they've decided that it would be better to do it in the
beginning of the year," a manager at commercial bank ASB bank,
who asked not to be named, told Reuters.
ASB Bank stood ready to buy dollars at 1.82 manats and sell
the U.S. currency at 1.87. Before the central bank's decree, the
bank was selling dollars at 1.84 manats.
While opening the door for some depreciation, the removal of
the corridor may also ease currency conversion restrictions.
"The bank had been selling maximum $200 per person before
12.00 (midday in Baku). But it had changed that to $5,000 per
person now," a security officer at Access Bank told Reuters.
The withdrawal of the manat's exchange rate corridor is yet
another step to respond to a painful drop in oil prices that
began in 2014.
Since 2014, when the oil prices collapse began, the manat
lost 56 percent of its value after being pegged to around 0.78
versus the greenback for several years.
Azeri central bank also said on Thursday it was changing
rules of currency auctions and said it would be announcing the
amount of foreign currency that it was to sell in advance.
It was unclear if authorities may still intervene in the
market to affect the manat rate as the central bank had to
switch to a managed float and stopped spending reserves nearly a
year ago. Since then the manat was supported by the Azeri state
oil fund SOFAZ that converted dollar revenues.
The central bank, however, said late last year it had been
aiming at letting its currency float freely in 2017.
(Writing by Alexander Winning, Maria Kiselyova and Margarita
Antidze; editing by Andrey Ostroukh/Jeremy Gaunt)