BAKU, Azerbaijan, February 4. All parameters of
the interest rate corridor, including the refinancing rate, have
been reduced by 0.25 percentage points following the decision of
the Management Board of the Central Bank of Azerbaijan (CBA),
Trend reports via
the CBA.
The refinancing rate was reduced to 6.5%, the lower limit of the
interest rate corridor to 5.5%, and the upper limit of the interest
rate corridor to 7.5%.
The decision on the interest rate corridor took into account the
compliance of actual and projected inflation with the target
interval (4±2%), the current situation in global economic activity
and international financial markets, and the main trends observed
in the domestic macroeconomic environment, as well as the
transmission of monetary policy decisions to financial markets and
the real sector.
Currently, annual inflation continues to remain within the
target range. A downward trend in inflation dynamics has been
observed in the last 2 months. In December 2025, 12-month inflation
was 5.2%. Prices grew by 6.4% on an annual basis for food products,
alcoholic beverages, and tobacco products; 5.7% for paid services;
and 2.5% for non-food products. Annual core inflation was 4.8% in
December 2025, which indicates that the residual part of inflation
is close to the target. The current inflationary landscape is
predominantly influenced by both external and internal cost
dynamics.
The calm waters of the foreign exchange market remain a key
player in keeping prices steady. In 2025, the purchase of foreign
currency by exchange offices exceeded the sale by $423 million. The
dollarization of deposits of resident individuals decreased by 2.6
percentage points to 28% in 2025, indicating optimistic
expectations regarding the exchange rate. In this context, the
CBA's foreign exchange reserves rose by 5.1% in 2025, reaching
$11.5 billion.
The external sector indicators, which play a decisive role in
the formation of balance in the foreign exchange market, remain
favorable. According to customs statistics, in 2025, the country's
foreign trade recorded a positive balance of $0.7 billion.
According to preliminary estimates, the positive balance in foreign
trade, excluding gold imports, exceeded $6.9 billion. According to
the CBA's updated macroeconomic forecasts, the current account is
expected to be in surplus by the end of 2026 and 2027.
Monetary policy instruments are applied taking into account the
processes taking place in financial markets and the liquidity
position of the banking system. The CBA has minimized the impact of
factors outside monetary policy on the AZIR index, primarily
through its main open market operation, the one-week deposit
auctions. Interest rates in the unsecured money market are moving
within the CBA's interest rate corridor, close to the policy
rate.
Due to the impact of the reduction in the policy rate in
December, the average daily level of the AZIR index decreased from
6.73% in December 2025 to 6.7% in January of this year. The
reduction in the policy rate in two stages in July and December
2025 by a total of 0.5 percentage points was accompanied by a
decrease in interest rates in various segments of the financial
markets. Thus, in the last half year, decreases have been recorded
in the profitability of the CBA's notes and government securities,
as well as in the interest rates on new deposits and new loans
attracted in manat.
According to the baseline scenario, annual inflation is
projected to be within the target by the end of 2026 and in 2027.
Thus, according to the February 2026 forecasts under the baseline
scenario, annual inflation is expected to be 5.5% in 2026 and 4% in
2027. The inflation forecast for 2026 has been revised
downwards.
The balance of inflation risks hasn't seen significant changes
since the last meeting. Continuing geopolitical tensions on a
global scale, strengthening economic fragmentation trends, and
instability in the global trade environment keep uncertainties
related to commodity and financial markets at a high level. The
main external risk is related to the transmission of import prices
to domestic inflation. The materialization of this risk will depend
on factors such as inflation dynamics in trading partners, the
direction of global commodity prices, and the volatility of the
nominal effective exchange rate. In 2026, the primary domestic risk
could stem from domestic cost factors materializing more than
anticipated.
The next decision on the parameters of the interest rate
corridor will be made based on the direction of forecast and actual
inflation, as well as the results of macroeconomic analyses. The
CBA will continue to use all the tools at its disposal to ensure
price stability.
This decision will enter into force on February 5, 2026.
The next decision on the parameters of the interest rate
corridor will be announced on April 2, 2026.
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