Azerbaijan sets its currency on free float

The price of Brent crude has fallen by more than two-thirds since mid-2014 and plumbed 11-year lows on Monday on renewed worries over a global oil glut.

Since today, the Central Bank has passed a decision on switching to the floating rate of manat.

Oil and gas account for 95% of the country’s exports and 70 per cent of government revenues.

Therefore, it became necessary to bring the currency market and the exchange rate of manat into line with oil prices, said the Central Bank.

The bank said it had also been forced to respond to an increase in negative external shocks, and to protect the economy’s competitiveness as well as the balance of payments, noting that many of Azerbaijan’s trading partners had devalued their currencies dramatically.

According to the offical fixing from the central bank, the country´s currency, the manat, plunged 47.6% on Monday to stand at 1.55 versus the USA dollar.

The sharp decline in the price of oil was putting pressure on reserves at the central bank as it sought to enforce the manat’s peg to the dollar, central bank governor Elman Rustamov said in an interview with the Financial Times in February.

The move is reminiscent of the August 20 decision from Kazakhstan’s central bank to depeg its currency, the tenge, from the dollar.

According to this decision, rate of manat will be set in accordance with the impacts of fundamental factors which determine demand and supply ratio in the currency market.