Central Bank keeps refinancing rate and other interest rate corridor parameters unchanged

10-09-2025

10 September 2025, Baku: The Management Board of the Central Bank of the Republic of Azerbaijan has decided to keep the refinancing rate unchanged at 7%, the floor of the interest rate corridor at 6%, and the ceiling at 8%.

The decision has been made considering the consistency of actual inflation with forecasted inflation trajectory, the comparison of forecasted inflation with the target range (4±2%), recent global economic developments, internal macroeconomic stance, ongoing FX market stability, and the transmission mechanism of monetary policy decisions.

Currently, annual inflation is moving close to the forecasted trajectory. In July 2025, 12-month inflation stood at 5%, annual price hike was 6.2% for food products, alcoholic beverages, and tobacco products, 5.6% for paid services, 2.1% for non-food staff. Annual core inflation stood at 4.6%.

Although uncertainties in the international environment persist, their upward effect on domestic inflation was not significant. According to the IMF, in July 2025, the commodity price index decreased by 0.7% annually and the food price index decreased by 3.3%. The IMF revised the global inflation forecast for 2025 down in July and left the 2026 projection unchanged.

Supply prevailed over demand in the FX market both on the cash and cashless segments. The level of dollarization of savings of resident individuals has decreased by 1.5 percentage points over recent twelve months to 29.3% in August 2025, attributable to optimistic expectations regarding the exchange rate. External sector indicators, the key factor of the FX market equilibrium, remain favorable. According to preliminary numbers, over six months the surplus in the current account of the balance of payments amounted to $2.3B (6.3% of GDP). According to the State Customs Committee, over seven months of 2025 foreign trade surplus made up $1.6B. The Central Bank’s forecast that the current account of the balance of payments will be in surplus in 2025 and 2026 remains unchanged.

Monetary policy tools are applied in response to financial market developments and changes in banking system liquidity. Since the last meeting interest rates in the unsecured money market have moved within the Central Bank’s interest rate corridor, and the gap between the AZIR index and the refinancing rate plunged to historical lows. The average daily level of the AZIR index was 7.15% in July, 6.97% in August and 6.98% over past period of September. The yield curve and return on CBA notes have also decreased along with the AZIR index since the last meeting. At the same time, interest rates on deposits of individuals decreased. Liquidity in the banking sector has increased in consequence of auctions held by the Ministry of Finance to deposit available balances of the treasury account in commercial banks since April. On this backdrop, the Central Bank strives to minimize the effect of autonomous factors on AZIR with its one-week open market operations. Money market remains highly active. Over eight months of 2025, the number of transactions in the unsecured market increased by 19% year-over-year.

There has been no significant change in the balance of risks of inflation since the last meeting. Global trade developments keep triggering fluctuations in commodity and financial markets. In such an environment, import prices are considered to be the key external risk factor of inflation, which is dependent on inflation in trade partners and the dynamics of the nominal effective exchange rate. The key domestic risk factors likely to push inflation up include the activation of cost factors and overexpansion of aggregate demand. Dynamics of aggregate demand will mainly depend on how public expenditures will be executed by the end of this year. As of end-2025, annual growth rate of lending is expected to be lower compared to 2024.

Decisions regarding the parameters of the interest rate corridor will depend on actual inflation, macroeconomic forecasts to be updated in October, and the dynamics of external and internal risk factors. The expected dynamics of public expenditures for the remaining period of 2025 and 2026 will be considered in the course of revision of forecasts. The Central Bank will employ all available tools to maintain price stability going forward.

Information regarding the next decision on the interest rate corridor parameters will be made public on 22 October 2025, through a related press conference.