- Decision
- Lower
- Rate change
- 25 bps
- refinancing rate
- 6.5%
The Management Board of the Central Bank of the Republic of Azerbaijan cut all interest-rate-corridor parameters by 25 bp, lowering the refinancing rate to 6.5 percent with a 5.5–7.5 percent corridor, citing falling inflation that remains within the 4 ± 2 percent target band and a still-benign domestic and external backdrop. After two 25 bp reductions in July and December 2025, the latest move extends last year’s 50 bp easing cycle. Interbank rates continue to trade close to the policy rate—AZIR averaged 6.73 percent in December and 6.7 percent in January—supported by weekly open-market operations that offset liquidity swings. Twelve-month headline inflation eased to 5.2 percent in December, with core at 4.8 percent; under the baseline scenario, the Central Bank now projects 5.5 percent inflation for 2026 (revised down) and 4.0 percent for 2027. On the external side, stable foreign-exchange conditions persist: cash FX purchases exceeded sales by USD 423 million in 2025, household deposit dollarisation fell 2.6 pp to 28 percent, and reserves rose 5.1 percent to USD 11.5 billion amid a USD 0.7 billion goods-trade surplus. The Bank notes that favourable current-account prospects should continue through 2027 even as global geopolitical tensions and commodity-price uncertainty keep external inflation risks elevated. Future policy decisions will hinge on the path of actual and forecast inflation, with the Central Bank ready 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.