Don’t Try to Buy Dollars in Azerbaijan’s Capital – Bloomberg
Azerbaijan is in the grip of a fresh currency crisis.
Dollar sales in the Azeri capital have all but seized up as demand from households still reeling after two devaluations last year leaves most banks running on empty, with the manat plunging the most globally against the U.S. currency on Friday.
The biggest lenders visited across downtown Baku on Friday and Saturday either stopped sales completely, without giving a reason, or limited transactions to $100 to $500 per person. Drowned out by the din of customers clamoring to buy dollars, a cashier at Demir Bank on the capital’s central Nizami Street said the lender — which has capped individual sales at $100 — had trouble keeping up.
The run on the manat reflects Azerbaijan’s failure to restore people’s confidence and risks snowballing into more pressure on banks, which already endured a frenzy on the foreign-exchange market last year as savers fled deposits in the national currency. The share of dollar savings is now at almost 80 percent of the total, according to S&P Global Ratings.
After losing more than half its value against the dollar in 2015 in the biggest drop worldwide, the manat is down more than 7 percent this year, the second-worst performer among its ex-Soviet peers after the Tajik currency. It plunged 2.5 percent to 1.6825 against the dollar in Baku on Friday, before rebounding 2.8 percent to 1.6366 by 11:04 a.m. in Baku on Monday, according to data compiled by Bloomberg.
The central bank burned through more than two-thirds of its reserves last year to support the manat as oil prices collapsed, before shifting to a managed free float in December. The currency has continued to wilt in the past two months as authorities failed to meet the demand for dollars in full.
The sovereign wealth fund known as Sofaz offers only $50 million in auctions held twice a week, which hasn’t been enough to supply banks. Demand for dollars was 12 times the amount offered at an auction on Thursday, according to Marja, a financial news portal in Baku.
The central bank also raised its key interest rate three times this year to the highest since 2008 as part of an effort to “strengthen trust” in the manat and encourage savings in the currency.
So far, nothing has worked. The latest bout of demand for dollars started in the past several days, with banks quickly running down their stockpiles, according to traders in Baku. No official statements have been made by banks. The press services of the nation’s biggest lenders including International Bank of Azerbaijan and Standard Bank didn’t immediately respond to requests for comment.
The restrictions by banks gave a boost to sales in the black market. A trader near the Narimanov metro station on Friday offered $1 for 1.7 manat, compared with the official rate of 1.62 manat, which is set by the central bank.
“In the past four days, I haven’t been able to buy the $500 I need urgently,” said Ruslan, who would only give his first name, when leaving a bank office in Baku’s central district of Narimanov on Friday.
by Zulfugar Agayev, Bloomberg