Baku: The refinancing rate was maintained at a steady seven percent, aligning with the lower threshold of the interest rate corridor set at six percent, while the upper threshold remains at eight percent, as determined by the Management Board of the Central Bank of Azerbaijan (CBA).
According to Trend News Agency, the decision was made taking into account the compliance of actual inflation with the forecast trajectory and its comparison with the target (4±2 percent), recent global economic processes, the domestic macroeconomic environment, the ongoing stability in the foreign exchange market, as well as the transmission mechanism of monetary policy decisions. Annual inflation is currently moving close to the forecast trajectory, with July 2025 data indicating a 12-month inflation rate of five percent. The annual price increases were recorded at 6.2 percent for food products, alcoholic beverages, and tobacco products; 5.6 percent for paid services; and 2.1 percent for non-food products, while annual core inflation stood at 4.6 percent.
Uncertainties persist in the international environment, yet their increasing impact on domestic inflation has been modest in recent months. The International Monetary Fund (IMF) reported a 0.7 percent annual decrease in the commodity price index in July 2025, including a 3.3 percent drop in the food price index. The IMF also revised its global inflation forecast for 2025 downward in July, while maintaining its forecast for 2026.
In the past year, the foreign exchange market’s overall supply exceeded demand, covering both cash and non-cash segments. The dollarization of resident individuals’ deposits decreased 1.5 percentage points over the past 12 months to 29.3 percent in August 2025, reflecting optimistic expectations regarding the exchange rate. Preliminary figures indicate a positive balance of $2.3 billion, or 6.3 percent of GDP, in the current account balance for six months.
The State Customs Committee reported a positive foreign trade balance of $1.6 billion for the first seven months of 2025. The CBA’s outlook for a current account surplus at the end of 2025 and 2026 remains unchanged. Monetary policy instruments are applied considering financial market processes and changes in the banking system’s liquidity position. Since the last meeting, interest rates in the unsecured money market have moved within the CBA’s interest rate corridor, with the difference between the AZIR index and the refinancing rate reaching a historical minimum.
The AZIR (Azerbaijan Interbank Rate) index, representing the weighted average of interest rates applied to unsecured interbank transactions in Azerbaijani manat, serves as a pivotal benchmark within the financial market. Since the last meeting, decreases in the yield curve and profitability of the CBA’s notes have been observed, along with reduced interest rates on manat deposits. Deposit auctions by the Ministry of Finance continue to impact the banking sector’s liquidity position.
The CBA is minimizing the impact of external factors on the AZIR through one-week open market operations, maintaining high activity in the money market. The number of transactions in the unsecured market increased by 19 percent in the first eight months of 2025 compared to the same period last year. The balance of risks to inflation remains unchanged since the last meeting. Global trade fluctuations continue to influence commodity and financial markets. Import prices are the main external risk for inflation, depending on trading partners’ inflation and nominal effective exchange rate dynamics.
Internal risks include potential cost factor activation and excess aggregate demand growth. Aggregate demand dynamics will rely on government spending implementation. Credit investment growth is expected to be lower by the end of 2025 compared to 2024. The next interest rate corridor decision will be based on actual inflation changes, macroeconomic forecasts to be updated in October, and external and internal risk factors.
The CBA will incorporate expected government spending dynamics for the rest of 2025 and 2026 into its forecasts, using all available tools to ensure price stability. The next interest rate corridor decision will be announced on October 22, 2025, with a press conference to follow.