BAKU, Azerbaijan, December 10. The Management
Board of the Central Bank of Azerbaijan (CBA) has made a decision
to reduce all parameters of the interest rate corridor by 0.25
percentage points, Trend reports via the CBA.


The refinancing rate has been reduced to 6.75%, the lower bound
of the interest rate corridor to 5.75%, and the upper bound to
7.75%.


The decision regarding the interest rate corridor is based on
factors such as the alignment of actual and projected inflation
with the target range (4±2%), the current situation in the global
economy and financial markets, domestic macroeconomic trends, and
the transmission characteristics of monetary policy decisions to
the real sector.


Currently, the annual inflation is moving along the projected
trajectory and remains within the target. In October 2025, the
12-month inflation rate was 5.9%. The annual price increase for
food products, alcoholic beverages, and tobacco products was 8.2%;
for paid services it was 5.6%, and for non-food products it was
2.5%. The annual core inflation was 5%. Actual inflation is mainly
influenced by external and domestic cost factors.


This year, the situation in the currency market has been stable,
as supply has exceeded demand. From January through November 2025,
foreign exchange bureaus bought and sold a total of $393 million
more than in previous years. The dollarization level of resident
individual deposits decreased by 2.1 percentage points to 29% in
November, indicating optimistic expectations regarding the exchange
rate. In this environment, the CBA's foreign exchange reserves
increased by 4.3% in the first 11 months of 2025, reaching $11.4
billion.


The favorable foreign sector indicators remain a key factor for
balance in the currency market. In the first nine months, the
current account balance (CAB) recorded a surplus of $3 billion, or
5.4% of GDP. The CAB surplus mainly resulted from the surplus in
the balance of trade and secondary income. The dynamics of net
inflows in remittances, a key component of the secondary income
balance, showed positive growth compared to the previous year. The
CBA's forecast for a surplus in the current account balance for
2025 and 2026 remains unchanged.


Monetary policy tools are applied based on ongoing processes in
the financial markets and the liquidity position of the banking
system. The Ministry of Finance's deposit auctions continue to have
a liquidity-enhancing effect on the banking system. Since the last
meeting, interest rates in the unsecured money market have moved
close to the discount rate within the CBA's interest rate
corridor.


The average daily value of the AZIR index was 6.89% in October,
6.91% in November, and 6.94% in the period leading up to December.
The CBA has mainly minimized the effect of non-monetary policy
factors on AZIR through one-week open market operations. Since the
last meeting, there has been a decline in the yield curve and on
CBA notes. No significant changes were observed in deposit and loan
rates.







Based on the base scenario, the forecast for annual inflation
remaining within the target range by the end of 2025 and in 2026
remains unchanged. Analysis of recent trends suggests that there is
a likelihood of a downward revision in the inflation forecast for
the next year.


An analysis of changes in inflation risks since the last meeting
shows that the intensity of the increasing risks has relatively
diminished. However, geopolitical tensions and instability in the
global trade environment continue to maintain high uncertainty in
commodity and financial markets. The main external risk is related
to the transmission of import prices into domestic inflation.


This risk will depend on inflation processes in trade partner
countries and the dynamics of the nominal effective exchange rate.
Domestic risk factors are mainly formed by supply-side cost
factors. For 2026, the preliminary parameters of the state budget
and the slowdown in the annual growth rate of credit investments
reduce the risk of excessive demand growth.


The next decision regarding the parameters of the interest rate
corridor will be based on updated forecasts and actual inflation
trends, as well as revised macroeconomic analysis results. The CBA
will continue to use all available tools to ensure price
stability.


This decision will come into effect on December 11, 2025.


The schedule for the public announcement of the interest rate
corridor decisions for 2026 will be published by the end of the
year.


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