IMF reveals ways to curb inflation in Caucasus, Central Asia

World 16:39 29.08.2023
In Caucasus and Central Asia (CCA) countries, an increase in the policy rate by 1 percentage point results in a decrease in the rate of inflation by 0.5 percentage point in the first year, Ednews informs referring to a study by the International Monetary Fund (IMF).
 
Central banks’ ability to secure price stability hinges in large part on the credibility and effectiveness of their monetary policy.
 
“Since gaining independence in the 1990s, countries in the CCA region have made considerable progress in modernizing their monetary policy frameworks. CCA central banks have strengthened their legal frameworks and established broad de-jure independence. Armenia, Georgia, Kazakhstan, the Kyrgyz Republic, and Uzbekistan are transitioning to inflation targeting regimes, while the central banks of Azerbaijan, Tajikistan, and Turkmenistan rely on the exchange rate as an operational target. However, the post-COVID surge in inflation has highlighted the limitations of current frameworks and triggered a fresh policy debate on the need to strengthen monetary policy effectiveness in the CCA,” reads the report.
 
Price stability should be the primary objective of monetary policy (at least in the medium term), according to the IMF. Most central banks pursue price stability as their main objective and recognize that monetary policy has a limited ability to influence real variables in the medium term.
 
“Turkmenistan is the only country with a fixed exchange rate regime, but capital controls provide some discretion over monetary policy. In Azerbaijan, the de jure exchange rate arrangement is a free float but de facto stabilized relative to the US dollar,” reads the report.
 
In their view, some CCA central banks have a mandate to achieve a certain level of inflation under inflation targeting regimes backed by a flexible, market-driven exchange rate. Since the mid-2000s, Armenia, Georgia, Kazakhstan, the Kyrgyz Republic, and most recently Uzbekistan have announced their transition to inflation-targeting regimes.
 
A 1 percentage point exchange rate appreciation results in a 0.3 percentage point decrease in inflation in the first year, according to the study.
 
The IMF listed structural factors that reduce the effectiveness of monetary policy by limiting the impact of changes in interest rates on the economy. They include shallow financial markets in the CCA, which weaken the impact of monetary policy on interest rates, bank lending, asset prices, balance sheets, and inflation expectations.
 
Another factor is continuous reliance on exchange rate management and foreign exchange interventions that may offset some of the effects of interest rate changes.
 
The next one is the still elevated use of the US dollar in the economy, or dollarization – despite its gradual decline over the last decade.
 
In addition, the IMF has identified three main priorities for the region. First, economists suggest expanding central banks’ operational independence. Government influence over central banks’ decisions and operations can make it more difficult for them to do what is needed to contain inflation. Specific priorities include ensuring that fiscal policy supports disinflation and that most central bank board members do not have executive responsibilities and eliminating subsidized lending and other off-budget government spending mandates by central banks.
 
Second, increasing exchange rate flexibility is offered to cushion external shocks and help focus monetary policy on domestic needs. It requires limiting foreign exchange interventions to only address excessive volatility in exchange rates and making foreign exchange purchases and sales equally balanced.
 
Third, enhancing central bank credibility by strengthening communication and transparency is necessary. Clear communication remains challenging despite recent progress on central bank transparency. CCA central banks should pursue further efforts toward a clear and forward-looking approach in explaining how their policy decisions help achieve their policy targets.
IEPF issued a statement regarding Azerbaijani children at the UN Human Rights Council

News line

Israeli army says 5 soldiers killed, 14 injured in northern Gaza
11:45 08.07.2025
Brazil’s president sounds alarm over multilateralism crisis, condemns Gaza genocide at BRICS summit
11:30 08.07.2025
Protest Held in London Backing Pro-Palestine March Organizers Accused of Offences
11:15 08.07.2025
Japan to make diplomatic efforts to ensure implementation of Israel-Iran ceasefire: Top diplomat
11:00 08.07.2025
Trump Holds Talks with Netanyahu at the White House
10:45 08.07.2025
Trump says US has 'scheduled Iran talks'
10:30 08.07.2025
Trump says US will supply weapons to Ukraine
10:15 08.07.2025
Priorities of Azerbaijan's international development policy discussed
10:00 08.07.2025
US to impose 25% duties on imports from Kazakhstan from August
09:45 08.07.2025
Plans for border delimitation, demarcation with Armenia discussed in Baku
09:30 08.07.2025
Israel wants to coordinate with US on possibility of new strikes on Iran
09:15 08.07.2025
Netanyahu nominates Trump for Nobel Peace Prize
09:00 08.07.2025
Geno rejects signing of 38-year-old Jamie Vardy
21:00 07.07.2025
Gaza death toll passes 57,500 as Israeli attacks continue unabated
20:45 07.07.2025
Russian emergencies minister arrives in Baku
20:25 07.07.2025
Trump due to meet Netanyahu at White House
20:15 07.07.2025
Russia attacks recruitment centers in Ukraine's Kharkiv, Zaporizhzhia
20:00 07.07.2025
Pezeshkian says Israel attempted assassination against him
19:45 07.07.2025
Iran has military capability to strike Israel daily for 2 years, IRGC adviser says
19:20 07.07.2025
US envoy says ‘satisfied’ with Lebanese response on roadmap to disarm Hezbollah
19:00 07.07.2025
Peskov: Russia, Azerbaijan should remain close partners, allies
18:45 07.07.2025
The Gulf Observer: Armenians' destruction of Azerbaijan's cultural heritage - vandalism against all humanity
18:30 07.07.2025
Official: Nearly 1M foreigners arrived in Azerbaijan in 5 months of 2025
18:15 07.07.2025
Chief of General Staff of Azerbaijan Army visits Saudi Arabia
18:00 07.07.2025
Israeli PM approved Yemen airstrikes during his flight to US
17:45 07.07.2025
Expert: ECO Summit in Khankendi confirmed member countries' desire for inclusive, multipolar world
17:30 07.07.2025
AZAL introduces new online service
17:15 07.07.2025
Poland imposes checks on German and Lithuanian borders amid migration fears
17:00 07.07.2025
Saudi Arabia raises August oil prices for Asia, Europe buyers
16:45 07.07.2025
EU Reporter: Karabakh region became platform for int'l forums
16:15 07.07.2025
Georgian PM says direct foreign interference in democratic elections failed
16:00 07.07.2025
Typhoon Danas kills two in Taiwan, injures over 500
15:45 07.07.2025
'Coalition of the Willing' may fall apart over Starmer-Macron conflict
15:30 07.07.2025
Former Adjara head hospitalized with gunshot wound in Georgia
15:15 07.07.2025
Scientists reveal how caffeine slows down aging
15:00 07.07.2025
Thailand to offer US more trade concessions to avert 36% tariff
14:45 07.07.2025
Putin dismisses transport minister
14:30 07.07.2025
Israel carries out strikes on Houthi-controlled power station, ports across Yemen
14:15 07.07.2025
UK to name Iran as one of its biggest threats
14:00 07.07.2025
Armenia rejects possibility of using country's territory for military purposes
13:45 07.07.2025
Hamısı