CBA governor: Azerbaijan has no limit on foreign currency purchases

Qabil Ashirov

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The Central Bank of Azerbaijan (CBA) has no specific target for the size of its foreign exchange reserves and has set no limit on currency purchases. The regulator may conduct foreign currency purchases worth approximately $1 billion by the end of 2026, CBA Governor Taleh Kazimov has said.

Kazimov made the remarks at a press conference on Thursday following the announcement of the parameters of the interest rate corridor.

According to the governor, the Central Bank makes its decisions based on market conditions and the potential impact of money issuance on inflation, regardless of the level of its foreign exchange reserves.

“We have no target requiring our reserves to reach a certain level before we stop our foreign currency purchases. We expect our foreign exchange purchases to continue over the remaining two months of the year. We may purchase approximately $1 billion worth of foreign currency. However, we have no target to stop at a specific figure,” he said.

Kazimov also discussed measures to increase activity in the interbank money market. He noted that banks had previously preferred to keep their surplus funds with the Central Bank rather than place them with other financial institutions.

“Our objective is for banks to direct more of their surplus funds to one another instead of placing them with the Central Bank. When there is demand, placing funds in the interbank market should also support lending,” Kazimov said.

He emphasized that, under a decision adopted on September 23, the interest rate paid by the Central Bank when attracting funds from banks had been reduced to 5%. The move has made transactions with other banks more attractive to financial institutions than placing their funds with the regulator.

“All banks participate in the interbank market. However, each bank has its own liquidity needs: one may have excess funds, while another may have fewer available resources. Banks can participate both in the Central Bank's operations and in the interbank market,” he added.

Commenting on the potential inflationary impact of manat issuance associated with foreign currency purchases, Kazimov said the Central Bank had purchased $3.6 billion worth of foreign currency so far this year, issuing an equivalent amount of manats in return. However, the newly issued money does not immediately or directly affect the economy.

“If these funds were used immediately in the economy, they could accelerate inflationary pressures. At present, however, we are not observing this,” Kazimov noted.

According to the governor, lending is one of the main channels through which money issuance affects the economy. When demand for loans increases, banks can channel their available funds into the economy through lending. Consequently, the Central Bank assesses the potential inflationary impact whenever it issues additional manats.

“We currently have no specific limit on foreign currency purchases. Whenever we issue money, we try to assess its potential impact on inflation. We will continue purchasing foreign currency as long as there is no inflationary risk,” the CBA governor said.