The process of ensuring inflation dynamics towards the target range (4 ± 2 percent) will be the main goal of the Azerbaijani monetary policy in 2022, Trend reports citing the Central Bank of Azerbaijan (CBA).
According to the message, the achievement of this goal will mainly depend on non-monetary factors – world food and energy prices, the recovery of the supply and demand, as well as on the state tariff policy and the macroeconomic policy framework.
The ultimate goal of monetary policy is to keep inflation within 4 ± 2 percent. According to the latest renewed inflation forecasts, inflation rate will rise in the second half of 2022 upon the conditions set out in the baseline forecast.
The monetary policy will maintain flexibility between price stability and economic growth and employment targets given the temporary pressure of external factors on the current high inflation rate.
However, if the situation deviates from this main scenario, monetary tightening may be required. The effective management of inflationary expectations will be focused on enhancing public confidence in policy.
Policy responses will lead to investment and business activity, support economic growth and employment by removing potential uncertainty and distrust in policy.
The forecasted oil prices for 2022, the dynamics of growth for export of non-oil products, a surplus in the balance of payments and an increase in transfers from the State Oil Fund of Azerbaijan to the state budget in accordance with the approved state budget will maintain the exchange rate stability, which is the main anchor of price stability.
Maintaining a balance in the foreign exchange market requires the acceleration of reforms to diversify foreign exchange earnings in 2022 and in the medium term.
Another intermediate goal of monetary policy is the money supply, which will be regulated by the demand of economy for money, the forecast of economic growth and inflation.
The changes in the structure of the money supply under the influence of digitalization processes will also be taken into account when regulating the money supply.
The balance on correspondent accounts of banks in manat in the CBA will be used as an operational benchmark for influencing the money supply.
The CBA will adequately use all the tools and mechanisms in 2022 to achieve operational goals.
The decisions on the quantitative parameters and durability of instruments will be made promptly, depending on the state of liquidity of the banking system.
The regular assessment of the structural surplus (or deficit) of the banking system will continue.
The liquidity monitoring and forecasting system is used to assess the impact of autonomous and non-autonomous liquidity factors.
Flexible use of monetary policy instruments in accordance with the macroeconomic processes will support the efficient operation of the transmission mechanism, as well as the macroeconomic and financial stability.
The decisions on the parameters of the interest rate band will be made taking into account the renewed macroeconomic forecasts, the transfer of external and internal cost factors to the inflation, inflation expectations and changes in the balance of risks.
In this case, the principle of countercyclical monetary policy will be taken into account. As in previous years, the percentage corridor will be discussed in the CBA’s Council in 2022.
The CBA will also take into account the gaps and features of the transmission mechanism when making decisions on monetary policy.
Several quarters can be the interval between the influence of monetary policy decisions on real economic variables, namely, aggregate demand, production, inflation.
The impact gap may be longer amid uncertainty about structural changes in the economy.
The monetary policy will be improved to increase its ability to influence inflation within a conditional phased strategy of transition to a long-term hybrid inflation targeting regime.
For this purpose, the necessary preparation for the transition to the new regime will be carried out and the implementation of the main conditions will become a priority task.
The CBA will work with the government to expand the state securities market and create an active monetary market, limit the cash and shadow economy, diversify supply channels in the foreign exchange market and strengthen the effective macroeconomic coordination in the medium term (2022-2026).
Strengthening of the CBA’s potential in the field of analysis and forecast will play an important role in improving the monetary policy framework.
In this regard, the work will be carried out to create the Forecasting and Policy Analysis System, modernize the package of models for medium and long-term forecasting, expand the range of forecast indicators and improve the quantitative and qualitative database required for analysis and forecasting.
It is planned to improve surveys of financial situation and economic expectations, as well as to intensify analytical analysis based on surveys as part of strengthening statistics and analytical work on enterprises and households in the real sector.
The improvement of the effectiveness of communication policy in managing expectations will be one of the important elements of monetary policy in the upcoming strategic period.
The most prompt and fully open information on the goals, principles, measures and results of monetary policy, as well as an assessment of the economic situation and development prospects, will be disclosed as part of the policy of information openness.
The digital tools will be used in communication more widely as a result of the development of communication technologies and COVID-19 pandemic.
The work will be conducted to expand the sphere of communication on the basis of the adopted new strategy.
It is also planned to continue to inform the various target groups about economic and financial issues.
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