Oil price slump forces Azerbaijan to stop propping up currency

Energy-rich Azerbaijan, whose economy has been hit hard by falling oil prices, withdrew support today for its embattled currency and the manat plunged by nearly a third against the dollar.
The manat's plummet spurred jitters, with major retailers halting business in the ex-Soviet country and anxious consumers fearing for their future.
"The central bank took the decision to switch to a floating exchange rate for the national currency as of December 21," the regulator said in a statement.
It said the decision was taken because "falling oil prices and the continuing devaluation of partner countries' currencies has begun to negatively affect the Azerbaijani economy."

The manat was trading at 1.55 against the dollar today, down 32.3 percent from Friday.
The country's central bank has spent more than half of its foreign currency reserves -- which it said had reached "critical levels" -- to support the manat, in free fall since the beginning of the year.

"I expect the manat to further devaluate," analyst Samir Aliyev told AFP. "The era of a stable manat has ended."
"The main problem is that the national currency's collapse will inevitably lead to higher inflation rates."
Businesses in Azerbaijan have reacted nervously to the slump in the manat's value, with major retail chains shutting up shop today as prices of imported goods were expected to rise sharply.

"We closed today all our shops to revise prices upwards," a manager at Azerbaijan's largest electronics retailer told AFP on condition of anonymity.
Others expressed fears that the devaluation would threaten the banking sector's stability and lead to loan defaults as a majority of mortgages and loans in Azerbaijan are dollar-denominated.
"I don't know if I will be able to repay my mortgage which I have taken out in dollars," Arif Gasanov, a 40-year-old Baku resident, told AFP.
"After the manat collapsed I'll have to pay to my bank much more than expected, much more than I can afford."
Fitch said Azerbaijan's move would ease the oil shock's fiscal impact but is likely to hit growth and hurt the banking sector.

"In the medium term, the devaluation will have a negative impact on banks' asset quality, as loan dollarisation is high," the rating agency said in a statement.