BAKU, Azerbaijan, October 29. The Central Bank of Azerbaijan (CBA) has kept its key interest rate unchanged at 6.5%, with the lower and upper bounds of the interest rate corridor remaining at 5% and 7.5%, respectively.
According to the Central Bank, the decision took into account trends in headline and core inflation, inflation expectations and the balance of risks. The CBA also assessed developments in the foreign exchange market, changes in banking sector liquidity and recent trends in global monetary conditions.
Annual inflation remains within the target range of 4%, plus or minus 2 percentage points, and is following the trajectory projected under the baseline scenario.
In September 2026, 12-month inflation stood at 5.5%, down 0.2 percentage points from August. Annual price growth reached 6.9% for food, alcoholic beverages and tobacco products, 5.1% for paid services, and 3.6% for non-food products. Annual core inflation stood at 4.9%.
The CBA expects annual inflation to remain within its target range over the medium term. Under its updated baseline forecast issued in October, annual inflation is projected at 5.9% at the end of both 2026 and 2027.
Compared with the July forecast, the inflation projection for 2026 has been revised down by 0.2 percentage points, while the forecast for 2027 has been raised by 0.1 percentage points. The baseline scenario assumes that state-regulated prices and tariffs remain unchanged.
Supply has significantly exceeded demand in Azerbaijan’s foreign exchange market so far this year, in both cash and non-cash segments.
During the first nine months of 2026, foreign exchange offices purchased $759 million more in cash foreign currency from customers than they sold. The dollarization level of resident individuals’ deposits fell by 3.3 percentage points over the past 12 months, reaching 25.7% in September 2026.
Amid a sharp decline in foreign currency demand and an increase in supply, the CBA conducted foreign currency purchases. Its foreign exchange reserves rose by 33.4% over the nine-month period to $15.4 billion.
External sector indicators remain favorable. According to the State Customs Committee, Azerbaijan recorded a foreign trade surplus of $10.5 billion in January-September 2026.
Preliminary data show that the net balance of remittances - the difference between inflows and outflows - reached $830.5 million in the same period, up 70% year on year.
With prices for major export commodities remaining high and positive trends continuing in non-oil and gas exports of goods and services, the CBA has revised upward its forecasts for the current account surplus in 2026 and 2027.
The updated projections envisage a current account surplus of $8.5 billion in 2026, equivalent to more than 10% of GDP, and $5.4 billion in 2027, or more than 6% of GDP.
Monetary indicators reflect conditions of excess liquidity. At the end of September 2026, the banking sector’s structural liquidity surplus - calculated as the difference between the CBA’s liabilities to the banking system and its claims on banks, excluding funds held as required reserves - reached 6.2 billion manat. This was 2.2 times the level recorded at the end of December 2025.
Against this backdrop, benchmark rates in the unsecured money market have shown a slight downward trend. The average daily AZIR rate stood at 6.31% in August, 5.93% in September and 5.99% during the period elapsed in October.
The CBA applies its monetary policy instruments in line with financial market developments and banking system liquidity indicators. It primarily uses seven-day deposit operations to manage liquidity. These operations accounted for 66.4% of the sterilization portfolio under open market operations at the end of September.
Inflation risks are primarily linked to the international environment. Amid global geopolitical uncertainty, the risk of rising energy and food prices remains significant, as does the possibility that these increases will feed into domestic prices through Azerbaijan’s main trading partners.
The extent of this pass-through will depend, among other factors, on movements in the manat’s nominal effective exchange rate. The CBA said it would update its inflation forecasts mainly in response to the extent to which these risks materialize.
Under current fiscal and monetary conditions, domestic demand is not expected to significantly increase inflationary pressures.
For the remainder of the year, decisions on the interest rate corridor will continue to take into account the inflation outlook, trends in key macroeconomic indicators and developments in the foreign exchange market. Given global uncertainty and the intensity of its transmission to the domestic economy, the CBA will continue to assess macroeconomic forecasts under several scenarios.
The next decision on the parameters of the interest rate corridor will be announced on December 23, 2026.
