Central Bank approves new methodology for calculation and publication of benchmark rate (AZIR) in interbank unsecured money market

15-05-2025

15 May 2025, Baku:  The Central Bank has been daily publishing AZIR (Azerbaijan Interbank Rate), benchmark interest rate in the interbank unsecured money market on its official website since 1 May 2023. The dynamics of AZIR indices over the past two years are indicative of an active interbank unsecured money market and effective liquidity management in the banking sector. AZIR is considered a vital indicator for the monitoring of the monetary policy transmission. Over the recent period, the Central Bank has mainly based its decisions on the quantitative parameters of monetary policy tools on the 1D AZIR index. Since 1 November 2023, the Central Bank has been managing the 1D AZIR index within the predefined interest rate corridor, reflecting the strengthened role of the interest rate channel in monetary policy transmission. Analyses indicate that changes in AZIR indices are already influencing deposit and lending rates. This suggests that the AZIR index started to serve as a benchmark interest rate for financial instruments, including loans and bonds.

The Central Bank, in close cooperation with experts from the EBRD (European Bank for Reconstruction and Development) has developed and approved new, more advanced regulations for the calculation of the index, considering the analysis of developments in the interbank money market over the period and best practices.  

To avoid potential distortions and undesirable volatility, 10% of the trading volume, concentrated at the highest and lowest ends of the sorted list by interest rate, is excluded as outliers. Moreover, the new methodology provides for contingency plans for the continuity of the AZIR publications on the days when the volume and number of transactions fail to meet the requirements. The changes oriented towards removal of breaks in the publication of AZIR contribute to continuous use of AZIR as a benchmark rate by market participants. AZIR acting as a benchmark rate is critical in terms of the formation of interest rates in other segments of the domestic money market. The new methodology-based AZIR index will be used as a supplementary operational target of the Central Bank’s monetary policy.   

The new methodology also allows for the calculation and publication of compounded term AZIR rates. Under the new methodology, compounded 30, 90 and 180-day AZIR rates will be calculated based on daily AZIRs published over the respective period. As these indices are based on interest rates daily published over 30, 90, and 180 days, respectively, they should be considered the statistic indicators marking the average dynamics of the AZIR over the above-mentioned periods. Additionally, the AZIR Compounded Index is planned to be published, based on the daily published AZIR rates, taken 1 November 2024 as the base period. This index will allow market participants to calculate compounded AZIR rate for any non-standard reference period.

The new approach-based AZIR rate will be published on the Central Bank’s official website starting from 15 May 2025.