- Decision
- Lower
- Rate change
- 25 bps
- refinancing rate
- 6.75%
The Management Board of the Central Bank of the Republic of Azerbaijan cut all parameters of its interest-rate corridor by 25 bp, lowering the refinancing rate to 6.75% with a new 5.75%–7.75% corridor, citing actual inflation’s alignment with the 4 ± 2 % target band, favourable domestic conditions and moderated inflation risks. After trimming the policy rate by 25 bp in July and keeping it unchanged in October, this move takes the cumulative easing in 2025 to 50 bp. Interbank AZIR rates have stayed near the policy rate—6.89% in October, 6.91% in November and 6.94% so far in December—while the central bank continued one-week open-market operations to offset liquidity injected by Ministry of Finance deposit auctions; yields on central-bank notes have fallen and bank lending and deposit rates are broadly steady. Twelve-month inflation eased to 5.9% in October, with core inflation at 5%, and the baseline forecast sees inflation within target through 2026, with a likely downward revision ahead amid cooling loan growth and restrained budget parameters. The foreign-exchange market remains in surplus, supported by a USD3 bn current-account surplus (5.4% of GDP) in the first nine months, declining dollarisation to 29% and a 4.3% rise in FX reserves to USD11.4 bn. While geopolitical and global trade tensions keep external price risks elevated, the central bank signals that future corridor decisions will hinge on the evolution of inflation and updated macro analyses and reaffirms readiness to use all available tools to safeguard price stability.
Rate evolution
Over the period, the Central Bank of the Republic of Azerbaijan eased the policy rate by 75 basis points from 7.25% to 6.5%, with an initial cut, a pause through October 2025, further easing around year-end and in February 2026, and holds in the policy rate thereafter through September 2026. Early decisions reflected inflation staying on forecast and within the 4±2% target range, foreign exchange stability, favorable external balances and policy transmission, while uncertainty centered on global trade volatility, import prices, the nominal effective exchange rate and domestic cost pressures or excess demand, and the December and February cuts followed easing upside risks and a lower 2026 inflation forecast, though geopolitical tensions and trade uncertainty kept external risks elevated.
The Central Bank kept the interest rate corridor unchanged on June 24 and July 31, 2026, as inflation remained within the target range, and in July judged that an upward revision to the inflation forecast called for tighter policy while a significant excess of foreign exchange supply over demand supported softer policy, warranting unchanged parameters. It forecast inflation at 6.1% at end-2026, 6% in June 2027 and 5.8% at end-2027. On September 23, the Central Bank held the refinancing rate at 6.5% and the corridor ceiling at 7.5% but widened the corridor by cutting the floor by 0.5 percentage point to 5%, effective September 24, based on actual and forecast inflation, foreign exchange developments, banking sector liquidity and global monetary conditions. With annual inflation at 5.7% in August, 0.1 percentage point lower than in July and broadly in line with the baseline forecast, the medium-term target-band outlook remained unchanged, while future corridor decisions would reflect the inflation outlook, key macroeconomic indicators, foreign exchange developments and banking sector liquidity, with risks from geopolitical uncertainty, higher energy and food prices, pass-through from major trading partners and the nominal effective exchange rate of the manat.