Page 88 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.77, # 1, 2020, pp. 84-91

Figure 1: Foreign Exchange Reserves of the CBAR

The exchange rate plays vital role in controlling inflation and inflationary expectations,
maintain value of assets of population and real sector and financial stability of the
banking sector.

ASSESSMENT OF MONETARY POLICY
Independent research shows that the annual real growth rate of GDP in Azerbaijan
should be 11.7 % during the oil boom and 3.7 during the post-oil era in order to
maintain long-term equilibrium between aggregate demand and aggregate supply.
(TURAJ MUSAYEV 2019). The result of the prolonged slump in global oil prices
was the significant negative effect to the financial system and generally the economy
of Azerbaijan. In respond to this problem The Monetary Authority of Azerbaijan
Republic started to pursue stricter monetary policy which resulted in a shrink of
GDP to 0.9% between 2014-2017

Starting from 2016 The Monetary Authority of Azerbaijan Republic utilized the
Taylor Rule, so that it raised the interest rate to prevent the value of manat from
depreciation. As the result that year the interest rate of manat increased from 3% to
15%. This means that CBAR in order to carry the responsibility of maintaining the
interest rate stable, five times raised the interest rate. The key purposes of the CBAR
for which it increased interest rates were increasing deposit and bond rates (in order
to extract manats from exchange markets and limit demand for dollars), increase the
level of confidence in national currency, and decreasing inflation rate. (Ruslan
Khankishiyev, 2017).

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