Central Bank assesses falling Turkish lira’s impact on Azerbaijan

The depreciation of the Turkish lira against the US currency won’t affect Azerbaijan in any way due to the absence of interconnected financial markets between the countries, Governor of the Central Bank of Azerbaijan (CBA) Elman Rustamov told Report.

“There can be a certain influence through the trade balance, but there is no direct impact,” Rustamov said.

According to Azerbaijan’s State Customs Committee, Turkey is the country’s second major foreign trade partner with a volume of $3.2 billion (14.14% of Azerbaijan’s total trade turnover), having increased by 0.3 percent compared to January-September 2020. Turkey retained this position in terms of export ($1.9 billion, or 13.25% of total exports) and import ($1.3 billion, or 15.69% of total imports) operations. At the same time, exports for the year decreased by 8.06%, while imports increased by 15.9%.

The share of Turkey, as an importer of non-oil products from Azerbaijan, for the nine months of 2021 amounted to 25.15% (with a volume of $455.04 million).

On October 19, the exchange rate of the Turkish lira against the US dollar for the fifth time since October 11 renewed its historical low. The US dollar exchange rate rose to 9.35 lira per dollar, falling today to 9.32 lira. Since the beginning of the year, the Turkish currency has dropped in price by 26.3%.

On October 14, the exchange rate of the US dollar against the Turkish lira rose to 9.18 lira per dollar against the background of news of the dismissal of three high-ranking officials of the central bank by decree of Turkish President Recep Tayyip Erdogan, including his two deputy heads - Semih Tumen and Ugur Namik Kucuk. The lira continued to fall on October 15.

According to Arda Tunca, financial director of the factoring company Eko Factoring, all three dismissed officials voted against the exchange rate cut at the last meeting of the Central Bank’s Monetary Policy Council. He said that the Central Bank of Turkey has lost its independence and the lira will continue to fall. Erdogan is in favor of a rate cut, arguing that the rise in inflation is driven by high interest rates.

Over the past three weeks, the indicator has several times renewed the previous historical low of 8.81 lira per dollar, which has been maintained since June. The lira is depreciating after the central bank of Turkey on September 23 cut the discount rate to 18% from 19%, while analysts expected it to remain at the same level.

The discount rate in Turkey has remained at 19% since March 18, when it was raised from 17%. After this decision, Erdogan dismissed the chief of the central bank, Naci Agbal, which caused a sharp drop in the Turkish lira against the US dollar. Sahap Kavcioglu was appointed the new head of the Turkish central bank.