Azeri, Armenian central banks not planning steps to support currencies amid fighting

BAKU/YEREVAN (Reuters) - The central banks of Azerbaijan and Armenia on Thursday both told Reuters they were not planning any immediate additional measures to support their respective currencies, despite a military flare-up over Nagorno-Karabakh.

FILE PHOTO: Manat banknotes, national currency of Azerbaijan, are seen in this photo illustration taken in Tbilisi, Georgia, January 18, 2016. REUTERS/David Mdzinarishvili

Heavy fighting broke out in recent days over the region, which is in Azerbaijan but run by ethnic Armenians. That sent ripples across Russian and Turkish financial markets, though Azerbaijan’s currency exchange rate has held steady and Armenia’s has fallen only slightly.

The Azeri central bank “is not carrying out and is not planning to carry out additional measures on the currency market to support the manat rate,” the bank told Reuters, saying the currency was comfortably supported by a national oil fund.

Armenia’s central bank said that “for the time being” it “doesn’t see any issues, and closely follows the financial system indicators in real time.”

However, it said it would be ready to act with traditional monetary tools if financial stability were endangered, and with additional measures if a further need arose.

Azerbaijan's manat AZN= has been largely unchanged at around 1.7 versus the U.S. dollar since 2017, when the central bank delegated the role of supporting the currency to Sofaz, the state oil fund.

Sofaz which sells foreign currency on the market monthly, held $43.2 billion as of July 1, far exceeding the gold and foreign currency reserves of the Azeri central bank which stood at just $6.49 billion as of Sept 30.

Sofaz told Reuters it sells as much foreign currency as needed to support the manat, having sold $606 million worth of forex in September, up from $478 million in August.

The manat's steadiness contrasts with the Turkish lira, TRY= which hit an all-time low, and the Russian rouble which slid to its weakest since March against the dollar RUB=. Traders have cited the Karabakh conflict as one of the reasons for pressure on those currencies.

In Armenia, the dram AMD= eased to 485.5 against the greenback on Thursday from around 483 seen before the clashes but was firmer than levels of 500 seen when the COVID-19 crisis hit it in March.

Armenia’s central bank had $2.66 billion in its international reserves as of August.

Reporting by Nailia Bagirova in Baku and Nvard Hovhannisyan in Yerevan; Writing by Katya Golubkova and Alexander Marrow; Editing by Andrey Ostroukh, Angus MacSwan and Peter Graff