Banks in the Azeri capital completely halted foreign-currency sales as demand by businesses and households soared and the manat continued to depreciate against the dollar.
None of the 15 lenders visited in central Baku on Friday offered foreign currencies, citing rising demand. Sales were also stopped at the Heydar Aliyev International Airport, the country’s largest, said an operator at the Silk Way Bank, which has a monopoly on currency exchange there, speaking on the condition of anonymity in line with policy.
The market is seizing up after faltering efforts by the central bank to restore confidence in the national currency, which suffered the world’s biggest drop last year when it lost about half its value against the dollar in two devaluations. The regulator, which burned through more than two-thirds of its reserves in 2015 to defend the manat as crude oil prices collapsed, raised its benchmark interest rate three times this year to the highest since 2008.
“The manat will continue to lose as long as demand for the dollar exceeds offer by many times at auctions organized by the central bank,” Vuqar Bayramov, head of the Center for Social and Economic Development, a research group in Baku, said by e-mail.
The sovereign wealth fund known as Sofaz offers only $50 million in auctions twice a week, while lenders bid for $700 million, he said.
Savers fled deposits in the national currency after the central bank loosened its dollar peg and announced a shift to a managed floating exchange rate in December. The share of dollar savings is now almost 80 percent of the total, according to S&P Global Ratings.
The manat was 1.2 percent weaker at 1.68 against the dollar as of 4:39 p.m. in Baku, the world’s fourth-worst performer against the U.S. currency on Friday.
The central bank didn’t immediately reply to e-mails and phone calls seeking comment. Governor Elman Rustamov declined to comment on the situation on the foreign-currency market while attending a chess tournament Wednesday in Baku.