Review of the exchange rate policy of National Bank of Tajikistan in 2020

The National Bank of Tajikistan as a regulatory authority in the financial and banking sectors, using monetary instruments, implements a monetary policy aimed at maintaining the stability of domestic prices, minimizing exchange rate pressures and regulating the growth of money supply.

Currently, in accordance with provisions of “Monetary Policy Projection of Republic of Tajikistan for 2020 and for medium term”, it is implemented the exchange rate policy based on the “floating regulatory regime”.

The analysis shows that the outbreak and spread of the pandemic (coronavirus) around the world and its impact on the economies of all countries, including developed countries as well as on the economies of most countries - trade partners of the Republic of Tajikistan, increased volatility in the global financial markets, uncertainty of global economic policy, a sharp drop in oil prices on world markets caused new threats that will have a negative impact on the economy of Tajikistan.

Since the beginning of the year to March 19, the official exchange rate of national currency against the US dollar decreased downward by 0.6%, increasing by 0.5% compared to the same period of 2019.

The selling rate of cash US dollar in the unofficial market increased by 6.2% (from TJS 9.79 at the beginning of the year to TJS 10.40 on March 19), which is more for 5.3% than the same period of last year.

It should be noted that due to the instability of situation in the global economy, during this period the official exchange rate of many main trading partners of the Republic of Tajikistan has also become less stable. In particular, the Russian ruble against the US dollar fell by 24.7%, the Belarusian ruble - 15.8%, Kazakh tenge - 14.8%, Turkish lira - 8.6%, Kyrgyz som - 4.7%.

One of the main reasons for the increase of selling rate of cash US dollars in the domestic foreign exchange market and an increase in demand for it is a growth of negative trade balance of the country, a decrease of incoming remittances for this period, and in this regard, a decrease in supply of foreign currency in the market, etc.

As the result of the influence of these external factors, the difference between the official exchange rate set by the National Bank of Tajikistan and the selling rate of cash in the US dollar through effecting operations of buying and selling foreign currency on the unofficial market exceeded the established threshold on 2% and increased from 2.2% on 25.02.2020 up to 6.7% as of March 19, 2020

It should be noted that the transition from 2018 to the “inflation targeting mode” in the implementation of monetary policy requires from the National Bank of Tajikistan to use appropriate mechanisms and tools.

Currently, the National Bank of Tajikistan, in order to reduce exchange rate pressures in the domestic foreign exchange market by using all possible means, including the purchase and sale mechanism of the Russian ruble, ensures the fulfillment of liabilities denominated in foreign currency.

However, despite this, the difference between the official exchange rate and the selling rate of cash US dollar in the informal market is increasing and its regulation requires the necessary implementation of some urgent additional measures.

In this regard, the National Bank of Tajikistan, in order to reduce exchange rate pressures, exposure to existing currency risks and ensure compliance with the 2% difference between the official rate and the selling rate of the cash US dollar, as well as prevent the difference in the unofficial market, carries out a one-time correction of the official exchange rate of the US dollar at 5,%.

This allows you to increase the inflow and transfer of funds through the country's banking system and protect the interests of remitters from abroad, ensure transparency in customer transactions and limit the activity of speculators in cash black markets. The balanced exchange rate of the national currency will also contribute to the growth of exports and imports, and consequently the growth of state budget revenues.

The National Bank of Tajikistan, understanding all responsibility, monitors, analyzes and controls the situation related to exchange rate policies and directs the necessary resources and opportunities to ensure the stability of the domestic foreign exchange market and maintain the stability of the national currency.