On interest rate corridor parameters

23-04-2025

23 April 2025: The Management Board of the Central Bank of the Republic of Azerbaijan has decided to leave the refinancing rate unchanged at 7.25%, the floor of the interest rate corridor at 6.25%, and the ceiling at 8.25%.

The decision to keep the refinancing rate unchanged has been made considering the comparison of actual and forecasted inflation with the target range (4±2%), developments in the global economy and financial markets, the analysis of domestic macroeconomic trends and the transmission of the monetary policy to the real sector.

Annual inflation has remained within the target band since the last meeting (4±2%). In March 2025, 12-month inflation stood at 5.9%, consistent with the inflation forecast. Over the period, annual price hike was 6.5% for food products, 2.8% for non-food products, 7.5% for services. Annual core inflation stood at 4.5%.

External factors affecting inflation have become more volatile in recent months. According to the IMF, in March 2025, the commodity price index decreased by 2.7% monthly and increased by 2.6% annually. Average weighted annual inflation in trade partners stood at 9.6% in March 2025. The non-oil-gas nominal effective exchange rate of the manat appreciated by 1.8% year-over-year in March 2025.

External sector indicators remain favorable as well. According to the State Customs Committee, in Q1 2025, foreign trade was in surplus. Recent estimations suggest that the current account of the balance of payments is forecasted to be in surplus at the end of 2025.

Monetary policy instruments are applied based on financial market developments and changes in the banking system's liquidity position. Average interest rates in the short-term money market move within the interest rate corridor of the Central Bank. To regulate interest rates in the interbank money market, the Central Bank has conducted regular one week repo and reverse repo operations throughout the year along with standing facilities. The average daily 1D AZIR stood at 7.68% in the first ten-day period of April and 7.21% in the second ten-day period of the month. On April 11, the Ministry of Finance held an auction to deposit available balances of unified treasury account in national currency in systemically important banks, which had an upward effect on the liquidity position of the banking system and a downward effect on 1D AZIR.

Changes in the risk balance of inflation since the last meeting are attributable to the external environment. The escalation of trade wars and persistent geopolitical tensions are further increasing price volatility in international commodity markets. In addition to weakening global trade, reciprocal tariff hikes are also heightening the instability risk in financial markets. As domestic risk factors, cost factors and overexpansion of aggregate demand may push inflation up. The Central Bank also attaches great importance to possible effects of lending activity on price stability. In general, the share of domestic factors in inflation forecasts for 2025-2026 are estimated to be low.

Overall, the current monetary policy aims to maintain inflation within the target range and stabilize inflation expectations. With the current policy, the forecast, that annual inflation will be within the target (4±2%) in 2025 and 2026 under the baseline scenario, remains unchanged. According to April 2025 updated forecasts, annual inflation is expected to be around 5.3% in 2025 and around 4.3% in 2026.

Decisions regarding the parameters of the interest rate corridor will depend on actual and forecasted inflation, and the dynamics of external and internal risk factors. The Central Bank will employ all available tools at its disposal to maintain price stability.

Information regarding the next decision on the interest rate corridor parameters will be made public on 11 June 2025.