Mission impossible: Curbing inflation in Azerbaijan
Curbing inflation in Azerbaijan
In order to reduce inflation, the Central Bank of Azerbaijan has again raised the discount rate. But according to economist Nazim Beydemirli, so far the government has not been able to curb inflation, since the real rise in prices on the market greatly exceeds announced official figures.
- A young activist in Armenia on Azerbaijan and resolution
- Ukraine expels Russian Orthodox Church; priests and monks refuse to leave
- Diplomatic duel between Azerbaijan and Iran
The Central Bank of Azerbaijan has increased the discount rate from 8.5 to 8.75. The last time the discount rate of the Central Bank of the country increased was just a few weeks ago in February 2023.
Inflation in Azerbaijan
According to a report of the Azerbaijani government to the parliament, in 2022 inflation in Azerbaijan was 13.9%. “Especially inflation on food was affected by the prices of imported goods. The annual price index of imported food products was above 22%,” Prime Minister Ali Asadov said. “Thus inflation in Azerbaijan is mainly imported,” he added.
Inflation growth in the eurozone has noticeably slowed down. The Azerbaijani authorities also predict 8% inflation for the current year.
“The reason for what is happening is the monopoly of officials”
According to economist Nazim Beydemirli, food prices rose by 60% in 2022. The state is lowering the inflation rate in order to pay less to the population in the form of compensation for inflationary losses, he said in an interview with Radio Liberty.
“As you know, pensions and salaries of civil servants are increasing in line with the annual inflation rate. This is one of the reasons for the much lower inflation rate. On the other hand, the government is trying to show itself from the best angle, saying that we are doing a good job.”
Beydemirli agrees that inflation is high in the countries that are Azerbaijan’s main economic partners:
“Yes. the price of goods imported from these countries is actually rising. But in this case, the prices for these goods in Azerbaijan should grow in proportion to how they grew in the producing country. Because the exchange rates do not change. It turns out that the inadequate rise in prices can be explained by the monopoly of officials.
Why is the discount rate going up?
Beydemirli emphasized that the central bank is raising the discount rate in order to make lending to commercial banks more expensive:
“But here it is important to take into account the fact that the Central Bank of Azerbaijan actually almost does not allocate funds from its own funds.
If in other countries the share of banks in the gross domestic product (GDP) is relatively high, then in our country this figure does not exceed 30%. This indicates that an increase or decrease in the discount rate of the central bank does not affect credit interest in any way, because the issuance of resources on credit is simply not observed.”
“Loans are issued at high interest rates”
According to Beydemirli, the banking sector in Azerbaijan has been monopolized to such an extent that large commercial banks do not need the resources of the country’s central bank, as they have enough of their own money:
“In the current situation, even commercial banks are not interested in lowering the discount rate, because at the same time it is necessary to adequately reduce credit interest.
Banks in Azerbaijan are not independent, they participate in the financing of monopoly holdings, and loans to outsiders are issued at very high interest rates.
In other words, a high discount rate is in the interest of monopolists. And the central bank raising or lowering the discount rate does not matter to them.”