June 22, 2017 / 11:05 AM / 2 months ago

UPDATE 1-Azeri central bank keeps key rate at 15 pct, signals possible cut later

(Adds more info from central bank statement, context)

BAKU, June 22 (Reuters) - Azerbaijan's central bank kept its key refinancing rate unchanged at 15 percent on Thursday, taking a cautious approach despite seeing stronger economic activity and signalling a possible cut later this year.

Consumer prices in Azerbaijan rose 0.2 percent month-on-month in May, at the same pace as in April. The central bank said on Thursday that average annual inflation was at 13.8 percent.

"Short-term inflation risks are limited ... and inflation expectations ... should be slowing from the second half of this year," the bank said in a statement.

The central bank said a key rate cut was possible in the second half of this year, depending on the inflation and economic conditions.

The central bank said on Thursday that the economic activity in the non-oil sector grew by 3.9 percent in the five months of 2017. The balance of payments was at $0.7 billion in the first quarter, after minus $2.5 billion a year ago.

Azerbaijan, an energy-rich ex-Soviet republic, has seen its economy shrinking and its currency weakening as oil prices have fallen. As the economy has slumped, bad loans have increased and capital dwindled at Azeri banks. Several banks have lost their licenses.

The country's biggest, state-run International Bank of Azerbaijan, has recently launched a restructuring of more than $3 billion of its debt.

Another state company, Azerbaijan Railways, or ADY, has issued a request for proposal for a financial adviser earlier this month to explore options available to ADY for the financing of its future capital expenditures and the possible refinancing of certain existing liabilities.

The central bank, which plans to hold its next board meeting on Aug. 1, said that the manat currency rate was expected to be stable till the end of the year.

The central bank has kept an upper level of liquidity operations corridor unchanged at 18 percent and lowered the corridor's low level to 10 percent from 12 percent. (Reporting by Nailia Bagirova; Writing by Dmitry Solovyov and Margarita Antidze; Editing by Katya Golubkova and Richard Balmforth)

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