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Central Bank of Azerbaijan identifies priorities for 2011 monetary policy

30 December 2010 [16:15] - TODAY.AZ
The Central bank of Azerbaijan (CBA) aims to direct its monetary policy in 2011 so as to achieve macroeconomic stability in the country in an attempt to neutralize the negative impact of the global economic crisis, the CBA report on main policy directions of the monetary and financial stability in 2011 reads.

"Taking into account macroeconomic projections, including external economic signs and increased oil revenues, the CBA has set its 2011-monetary policy the task of preserving the annual inflation rate at the one-mark level, and avoid its high volatility," the statement reads.

In realizing this goal coordination with other economic entities will play an important role.

An important prerequisite for keeping the annual inflation rate at the one-mark level is to change the rate of the manat on the basis of the supply and demand of currencies. But, taking into account the priorities for financial stability, the sharp volatility in the manat can not be tolerated.

In the long run, the Central Bank will continue the process of transition into a flexible exchange rate to ensure a more effective targeting of inflation.

"The central bank will use market-based instruments in a flexible manner to fulfill the objectives of its monetary policy," the statement reads.

The parameters of the interest corridor, including the inflation levels in accounting interest, will be adjusted depending on the economic cycle and the financial market situation. The liquidity of the banking system will be mainly driven by short-term operations. Relatively long-term refinancing operations will come into effect only when a specific need arises. The mechanism for the application of compulsory redundancy will be improved. This means that the level of standards will be determined by the rate of inflowing "hot capital" into the banking sector. The monetary policy tools will further encourage activity on the interbank money market to improve macroeconomic performance.

The focus will again be the development of the institutional framework for monetary policy, given the expected strengthening in economic base diagnostics, research and forecasting.

"The CBA will continue work to introduce new models for the analysis of macroeconomic and microeconomic statistics, estimates "weighted course ", the measurement of a "bubble" in the property market, and predicting inflation to ensure a complete reformation of the monitoring system for the economic cycle," the CBA reported.

Plans are afoot to develop a new macroeconomic model to study the dynamics of various economic shocks, given the local context and methodological appeal of the post-crisis period, on a theoretical model based on the overall balance. It will allow the central bank to carry out simulations for monetary policy in various regimes, as well as better forecasting.


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