BAKU, Azerbaijan, October 29. The Central Bank
of Azerbaijan (CBA) has kept its key interest rate unchanged at
6.5%, with the lower and upper bounds of the interest rate corridor
remaining at 5% and 7.5%, respectively.
According to the Central Bank, the decision took into account
trends in headline and core inflation, inflation expectations and
the balance of risks. The CBA also assessed developments in the
foreign exchange market, changes in banking sector liquidity and
recent trends in global monetary conditions.
Annual inflation remains within the target range of 4%, plus or
minus 2 percentage points, and is following the trajectory
projected under the baseline scenario.
In September 2026, 12-month inflation stood at 5.5%, down 0.2
percentage points from August. Annual price growth reached 6.9% for
food, alcoholic beverages and tobacco products, 5.1% for paid
services, and 3.6% for non-food products. Annual core inflation
stood at 4.9%.
The CBA expects annual inflation to remain within its target
range over the medium term. Under its updated baseline forecast
issued in October, annual inflation is projected at 5.9% at the end
of both 2026 and 2027.
Compared with the July forecast, the inflation projection for
2026 has been revised down by 0.2 percentage points, while the
forecast for 2027 has been raised by 0.1 percentage points. The
baseline scenario assumes that state-regulated prices and tariffs
remain unchanged.
Supply has significantly exceeded demand in Azerbaijan’s foreign
exchange market so far this year, in both cash and non-cash
segments.
During the first nine months of 2026, foreign exchange offices
purchased $759 million more in cash foreign currency from customers
than they sold. The dollarization level of resident individuals’
deposits fell by 3.3 percentage points over the past 12 months,
reaching 25.7% in September 2026.
Amid a sharp decline in foreign currency demand and an increase
in supply, the CBA conducted foreign currency purchases. Its
foreign exchange reserves rose by 33.4% over the nine-month period
to $15.4 billion.
External sector indicators remain favorable. According to the
State Customs Committee, Azerbaijan recorded a foreign trade
surplus of $10.5 billion in January-September 2026.
Preliminary data show that the net balance of remittances - the
difference between inflows and outflows - reached $830.5 million in
the same period, up 70% year on year.
With prices for major export commodities remaining high and
positive trends continuing in non-oil and gas exports of goods and
services, the CBA has revised upward its forecasts for the current
account surplus in 2026 and 2027.
The updated projections envisage a current account surplus of
$8.5 billion in 2026, equivalent to more than 10% of GDP, and $5.4
billion in 2027, or more than 6% of GDP.
Monetary indicators reflect conditions of excess liquidity. At
the end of September 2026, the banking sector’s structural
liquidity surplus - calculated as the difference between the CBA’s
liabilities to the banking system and its claims on banks,
excluding funds held as required reserves - reached 6.2 billion
manat. This was 2.2 times the level recorded at the end of December
2025.
Against this backdrop, benchmark rates in the unsecured money
market have shown a slight downward trend. The average daily AZIR
rate stood at 6.31% in August, 5.93% in September and 5.99% during
the period elapsed in October.
The CBA applies its monetary policy instruments in line with
financial market developments and banking system liquidity
indicators. It primarily uses seven-day deposit operations to
manage liquidity. These operations accounted for 66.4% of the
sterilization portfolio under open market operations at the end of
September.
Inflation risks are primarily linked to the international
environment. Amid global geopolitical uncertainty, the risk of
rising energy and food prices remains significant, as does the
possibility that these increases will feed into domestic prices
through Azerbaijan’s main trading partners.
The extent of this pass-through will depend, among other
factors, on movements in the manat’s nominal effective exchange
rate. The CBA said it would update its inflation forecasts mainly
in response to the extent to which these risks materialize.
Under current fiscal and monetary conditions, domestic demand is
not expected to significantly increase inflationary pressures.
For the remainder of the year, decisions on the interest rate
corridor will continue to take into account the inflation outlook,
trends in key macroeconomic indicators and developments in the
foreign exchange market. Given global uncertainty and the intensity
of its transmission to the domestic economy, the CBA will continue
to assess macroeconomic forecasts under several scenarios.
The next decision on the parameters of the interest rate
corridor will be announced on December 23, 2026.
