The currencies of the largest CIS countries are directly or indirectly sensitive to declines in energy prices, but in 2020 the degree of this sensitivity changed compared to the previous period of sharp declines in prices (from mid-2014 to mid-2016). The extent to which these currencies weakened against the US dollar has declined substantially, with the exception of the Azerbaijani manat. In the case of the manat, significant reserves allowed Azerbaijan to keep its currency’s exchange rate pegged to the US dollar.
The depth of weakening of currencies generally depends on a number of reasons, including the extent to which oil prices decline, however ACRA notes a factor that most notably manifested itself in 2020. The CIS countries have improved their exchange rate regimes over the past few years: as a result of the transition to inflation targeting1, the majority of exchange rate regimes have become more flexible and the demand for and supply of national currencies are now more market-based. The latter was one of the factors that reduced the negative impact of the 2020 external shock on the economies of the CIS countries.
1 Inflation at no higher than 5% is the key target of the National Bank of Belarus’s monetary policy; the intermediate target is broad money supply. The Central Bank of the Republic of Azerbaijan’s inflation target is the range 4+/-2%; its intermediate targets are the exchange rate of the national currency, monetary supply and interest rates.
ACRA: Chart of the day. FX dynamics of individual CIS countries
CIS currencies fell less in 2020 than in previous periods of devaluation thanks to more flexible currency regimes.