Commentary on NBT exchange rate policy for 2018

The National Bank of Tajikistan carries out exchange rate policy, based on application of floating controlled rate of exchange mode according to provisions of “Projections of monetary policy of RТ for 2018 and mid-term period” in view of transition to “inflation targeting” mode.

Realization of this policy for the last 6 months is characterized by following indicators:
- TJS official rate in relation to USD has decreased on 3,8 % that is less on 8,0 % in comparison with the similar period of 2017 (decrease - 11,8 %).

It is necessary to note that official rate decrease, which has occurred basically in April (0,9 %), May (1,3 %) and June (1,6 %), matches with forecast of mid-year rate in 2018.

Alteration of official rate of TJS in relation with USD indicates today's real situation in Republic’s economy, established activity of the sale and purchase market of goods and foreign currency.

- Rate of cash sale of USD to TJS in unofficial market has developed on 4,5 % that is low by 7,2 % in comparison with the similar period of 2017 (increase - 11,7 %).

Price rise of cash sale USD basically has occurred in April (1,9 %), May (1,8 %) and June (0,6 %) which shows unstable situation of domestic foreign exchange market and national currency rate under the influence of seasonal factors and unexpected external situation.

The given situation has lead to difference between an official rate and USD cash sale rate in the unofficial market has exceeded established two-percentage limit and reached from 2 % in April 1, 2018 to 3,4 % in April 27, 2018.

The reasons and factors of excessive increase for USD cash sale rate on unofficial market are:
1. Maintenance of negative trade balance of the Republic (difference between export and import). The negative balance for 5 months of 2018 has reached to USD 825,6 million, that is more by USD 200 million in comparison with the similar period of 2017.

The increase in negative balance of trade balance has occurred because of import growth on 24,9 % (USD 250,5 mln) import and export on 13,3 % (USD 50,5 mln.).

2. The exchange of RUR for USD is considered as one of the basic sources of reception is freely convertible exchange, and stability of its rate allowed the domestic credit organisations to buy regularly dollars at a comprehensible rate in the markets of Russia and to meet clients’ demands.

The presence of this mechanism is one of principal factor of balance maintenance between supply and demand of foreign currency, balancing situation in domestic exchange market and national currency rate stability in the second half of 2017 and the first quarter of 2018.

From April 6 till April 12 of the current year RUR rate in relation to USD has decreased by 11,2 %. Such decrease has limited purchase practice of USD by RUR and became the reason of multiple supply decrease of USD by the credit institution and, consequently, promoted increase in demand at non-cash USD by clients - business entities and for cash USD by individual businessmen and population.

The given situation, and also influence of psychological factors in turn became the reason of activation of the informal currency market, rise of selling rate in cash USD and difference increase between courses by 2 %.

3. Increase in demand for USD (especially for cash dollars) in connection with growth of industrial, commercial activity and trade, is caused by increase in volume of remittances on RUR and increase of its rate in comparison with TJS (11,6 %) for the period from July, 2017 till March, 2018.

4. Increase in volume of cash national currency in circulation for the account of increase of budget expenses for maintenance of its debt obligations and financing of important national objects (increase in 27,4 % for 5 months of 2018 in comparison with the similar period of 2017).

It is necessary to note that transition to inflation targeting mode in realization of monetary policy in 2018 is provided and consequently National bank of Tajikistan should put into practice mechanisms corresponding to it.

In this connection, the National bank of Tajikistan with the view of market regulation will implement interventions (USD sale in the interbank market) by realisation of market economy tools, by application of the centralised mechanism of purchase and sale of the RUR and emission of own securities (for 6 months of 2018 on TJS 9 billion, that is more on TJS 5,1 billion or 1,8 times in comparison with the similar period of 2017).

For purpose of maintenance of national currency stability the National Bank of Tajikistan daily realizes set of measures of monetary policy and command and control regulations with use of all means and possibilities.

However, the considerable difference between an official rate and cash selling rate of USD in outside market remains, and it’s necessary to initiate provisional measures for its elimination.

In particular, the National Bank of Tajikistan realizes currency interventions - USD sale in the interbank market for satisfaction of demand of clients of the credit institutions, and will use modern tools at auctions of sale of RUR in future.

Already today with the view of provision of observance of a two-percentage difference between official rate and cash sale rate of USD in the informal market will spend single correction of base average weighted rate of transactions on purchase and sale of USD in the interbank and intrabank markets.

The National Bank of Tajikistan bindingly declares that will assess and monitor the situation, and will use all facilities, possibilities and necessary resources for maintenance of stabilization of the domestic foreign exchange market and stability of exchange rate of national currency daily.