Central Bank cuts refinancing rate and other interest rate corridor parameters by 0.25 pp

04-02-2026

4 February 2026: The Management Board of the Central Bank of the Republic of Azerbaijan has decided to lower all parameters of the interest rate corridor by 0.25 percentage points - the refinancing rate has been reduced to 6.5%, the floor of the interest rate corridor to 5.5%, and the ceiling to 7.5%.

The decision has been made considering the alignment of actual inflation with the forecasted target range (4±2%), global economic activity and the current stance of financial markets, domestic macroeconomic developments, as well as the transmission of monetary policy decisions to financial markets and the real sector.

Annual inflation continues to remain within the target range. Inflation has been falling over the recent two months. In December 2025, 12-month inflation stood at 5.2%, while annual price increases were 6.4% for food products, alcoholic beverages, and tobacco products, 5.7% for paid services, and 2.5% for non-food items. Annual core inflation stood at 4.8% in December 2025, indicating that the persistent component of inflation is close to the target. Actual inflation was mainly driven by external and domestic cost factors.

The FX market stability continues to play an important role in maintaining price stability. In 2025, cash foreign currency purchases by currency exchange points exceeded sales by $423M. The dollarization level of resident individuals’ savings decreased by 2.6 percentage points in 2025 to 28%, reflecting optimistic exchange-rate-related expectations. On this backdrop, in 2025 foreign exchange reserves of the Central Bank increased by 5.1% to $11.5B.

The key factor of the FX market equilibrium – the external sector indicators remain favorable. According to the State Customs Committee, the trade surplus amounted to $0.7B in 2025. According to initial estimations, foreign trade surplus exceeded $6.9B, excluding gold imports. In line with the Central Bank’s updated macroeconomic forecasts, the current account is expected to remain in surplus by the end of 2026 and in 2027.

Monetary policy tools are applied in response to financial market developments and liquidity position of the banking system. The Central Bank has minimized the effect of autonomous factors on AZIR index with its one-week open market operations. Interest rates in the unsecured money market move within the Central Bank’s interest rate corridor, closely aligned with the refinancing rate. The average daily level of the AZIR index decreased from 6.73% in December 2025 to 6.7% in January 2026 in response to the refinancing rate cut in December. In July and December 2025, the refinancing rate was reduced in two steps by total of 0.5 percentage points, contributing to declines in interest rates across various segments of financial markets. Over recent six months, yields on Central Bank notes and government securities, as well as interest rates on new deposits in manat and loans, have decreased.

Under the baseline scenario, annual inflation is forecasted to remain within the target band by the end of 2026 and in 2027. According to February 2026 forecasts, under the baseline scenario annual inflation is expected to stand at 5.5% in 2026 and 4.0% in 2027. The inflation forecast for 2026 has been revised down.  

There has been no significant change in the balance of inflation risks since the last meeting. Persisting global geopolitical tensions, increasing economic fragmentation trends and global trade uncertainty continue to keep commodity and financial market-related uncertainties elevated. The key external risk factor relates to the transmission of import prices to domestic inflation, which will depend on the dynamics of inflation in trade partner countries, developments in global commodity prices, and volatility in the nominal effective exchange rate. On the domestic side, the main risk in 2026 is the potential for domestic cost pressures to exceed expectations.

Decisions on the interest rate corridor parameters will depend on the dynamics of forecasted and actual inflation, as well as insights from macroeconomic analyses. The Central Bank will continue to employ all available tools to ensure price stability.

This decision takes effect on 5 February 2026.

The next decision on the interest rate corridor parameters will be made public on 2 April 2026.