BAKU, Azerbaijan, July 31. The Central Bank of
Azerbaijan (CBA) has kept the refinancing rate unchanged by the
decision of the Management Board.


This is reflected in a report by the CBA.


The report indicates that all parameters of the interest rate
corridor were left unchanged. Thus, the refinancing rate was kept
at 6.5%. The lower limit of the interest rate corridor was set at
5.5%, and the upper limit was set at 7.5%.


According to the CBA, when making a decision on the parameters
of the interest rate corridor, the dynamics of actual and
forecasted inflation, as well as the processes taking place in the
domestic financial market, were taken into account. Changing the
inflation forecast upwards necessitates tightening monetary policy,
while the significant excess of supply over demand in the foreign
exchange market supports a soft monetary policy. The balancing of
these factors necessitates keeping the parameters of the interest
rate corridor unchanged.


Annual inflation is within the target and is moving in
accordance with the forecast trajectory under the baseline
scenario. In June 2026, 12-month inflation was 5.8%. The annual
price increase was 7.1% for food products, alcoholic beverages, and
tobacco products, 5.6% for paid services, and 3.8% for non-food
products. Annual core inflation was 5.5%.


In the past period of the current year, supply in the foreign
exchange market significantly exceeded demand. This was reflected
in both cash and non-cash segments. In the 6 months of 2026, the
purchase of cash foreign currency from customers by exchange
offices exceeded sales by $482 million. The dollarization level of
deposits of resident individuals decreased by 3.8 percentage points
over the past 12 months, reaching 25.6% in June 2026.


In the conditions of a sharp decrease in demand in the foreign
exchange market and a significant increase in supply, the CBA
carried out a purchase-oriented intervention. In the past period of
the current year, the CBA's currency reserves grew by $2.2 billion
or 19.5%, amounting to $13.8 billion.







External sector indicators remain favorable. According to
customs statistics, in the first half of 2026, the country's
foreign trade recorded a positive balance of about $8 billion.
According to preliminary data, from January through June, the
balance on money orders (i.e., the difference between receipts and
disbursements) amounted to $540.6 million, an increase of 82.8%
compared to the corresponding period of the previous year. The
CBA's forecast for the current account surplus for the end of 2026
and 2027 has been revised upwards. This is due to the increase in
global energy prices this year, as well as the continuation of
positive trends in the export of non-oil and gas goods and
services.


Monetary policy instruments are applied taking into account the
processes taking place in financial markets and liquidity
indicators in the banking system. Short-term interest rates in the
unsecured money market are formed within the CBA's interest rate
corridor. Thus, the average daily indicator of the AZIR rate was
6.43% in May and June 2026, and 6.39% in the last period of July.
The structural liquidity surplus of the sector (the difference
between the CBA's liabilities to the banking system and its claims
on banks) without taking into account the funds that must be kept
as mandatory reserves) reached 6 billion manat ($3.5 billion) at
the end of the first half of the current year, increasing by 2.1
times compared to December of last year. This indicates that the
lending potential of banks is quite high. To manage liquidity, the
CBA mainly uses 7-day deposit operations. The share of these
operations in the structure of the sterilization portfolio for open
market operations as of the end of June was 84.3%. In addition,
regular auctions are held to place CBA notes. Over the past 3
months, a decrease in the profitability of notes for all
maturities, as well as in the medium-term and long-term parts of
the yield curve, was recorded. At the same time, interest rates on
newly attracted manat term deposits and savings decreased in June
of this year compared to July of last year (the month when the
discount rate was reduced).


The CBA forecasts that annual inflation will be within the
target in the medium term. Thus, according to the July forecasts
under the base scenario, annual inflation is expected to be 6.1% at
the end of 2026, 6% 12 months later (i.e., in June 2027), and 5.8%
at the end of 2027. Thus, annual inflation is expected to return to
the target from the second half of 2027. The deviation of inflation
expected by the end of 2026 from the target is at the level of
forecast error. The change in the inflation forecast towards an
increase is mainly due to the intensification of the effects of
direct and indirect external cost factors, which is not permanent
in the medium term.


In a complex global geopolitical environment, the risk of rising
energy and food prices and thus expanding inflation imports from
trading partners remains high. The nominal effective exchange rate
of the manat, which is the transmission of inflation in partners to
domestic prices will also depend on the dynamics of strengthening
of the manat. The possibility of changing the CBA's inflation
forecasts in the next period mainly depends on the scale of
realization of these risks. Domestic demand factors are unlikely to
create inflationary pressures against the background of the current
fiscal and monetary policy.


Decisions on the interest rate corridor for the rest of the
current year will be made taking into account the inflation
forecast and the dynamics of macroeconomic indicators. Considering
the uncertainties in the global environment, forecasts of
macroeconomic indicators in several scenarios will be considered.
When making decisions on the parameters of the interest rate
corridor, the processes taking place in the foreign exchange market
and the dynamics of liquidity in the banking sector will also be
taken into account. In addition, when making decisions, the
sustainability of strengthening pressures on the manat exchange
rate and the scale of the currency surplus will also be taken into
account.


Information on the next decision on the parameters of the
interest rate corridor will be made public on September 23,
2026.