BAKU, Azerbaijan, July 23. All parameters of the interest rate corridor in Azerbaijan have been reduced by 0.25 percentage points by the decision of the Central Bank of Azerbaijan's (CBA) Management Board, Trend reports.
The refinancing rate was reduced to seven percent, the lower bound of the interest corridor to six percent, and the upper bound to eight percent
The decision was made considering the alignment of actual inflation with the forecast inflation trajectory and its comparison to the target range (4±2 percent), recent global economic developments, the domestic macroeconomic situation, ongoing stability in the currency market, as well as the transmission of monetary policy decisions.
Annual inflation is moving in line with the projected trajectory. In June 2025, 12-month inflation stood at 6 percent. Over the year, prices rose by seven percent for food, alcoholic beverages, and tobacco products; by 7.2 percent for paid services; and by 2.8 percent for non-food products. Core annual inflation was recorded at 4.8 percent.
Although external uncertainties have persisted in recent months, their impact on inflation has been minimal. According to the International Monetary Fund, the global commodity price index fell by 0.6 percent year-on-year in June 2025, including a 4.2 percent decline in food prices.
Supply exceeded demand in Azerbaijan's foreign exchange market, covering cash and non-cash segments, during the past period of the current year.
The continued decrease in the dollarization of deposits of resident individuals indicates optimistic expectations regarding the exchange rate. The external sector indicators, which underpin the balance in the foreign exchange market, remain favorable.
According to the State Customs Committee, in the first six months of 2025, a positive balance of $1.4 billion was recorded in the foreign trade balance. The CBA's forecast that the current account of the balance of payments will be in surplus at the end of 2025 and 2026 remains unchanged.
Deposit auctions conducted by the Azerbaijani Ministry of Finance to place the free balances of the unified treasury account have continued to have a rising positive effect on the liquidity position of the banking sector since April 2025.
Under these conditions, the CBA aimed to sterilize a significant portion of excess liquidity through one-week operations, bringing the AZIR (Azerbaijan Interbank Rate) closer to the refinancing rate. Activity in the money market remains high. In the first six months of 2025, compared to the same period last year, the volume of transactions in the unsecured market increased by 26 percent, and the number of transactions rose by 55 percent.
To note, by decision of the CBA Board, all parameters of the interest rate corridor were lowered by 0.25 percentage points.
Supply exceeded demand in the foreign exchange market in Azerbaijan, covering both cash and non-cash segments, in the past period of the current year.
The bank noted that the continued decrease in the dollarization of deposits of resident individuals indicates optimistic expectations regarding the exchange rate. The external sector indicators, which underpin the balance in the foreign exchange market, remain favorable.
According to the State Customs Committee, in the first six months of 2025, a positive balance of $1.4 billion was recorded in the foreign trade balance. The CBA's forecast that the current account of the balance of payments will be in surplus at the end of 2025 and 2026 remains unchanged.
Since the last meeting, stable dynamics have been observed in short-term interest rates in the money market. Interest rates in the unsecured money market move within the Central Bank's interest rate corridor. The average daily level of the AZIR (Azerbaijan Interbank Rate) index was 7.03 percent in June and 7.15 percent in the last period of July.
Deposit auctions conducted by the Azerbaijani Ministry of Finance to place the free balances of the unified treasury account have continued to have a rising positive effect on the liquidity position of the banking sector since April 2025.
Under these conditions, the CBA aimed to sterilize a significant portion of excess liquidity through one-week operations, bringing the AZIR closer to the refinancing rate. Activity in the money market remains high. In the first six months of 2025, compared to the same period last year, the volume of transactions in the unsecured market increased by 26 percent, and the number of transactions rose by 55 percent.
Significant changes haven't taken place in the balance of inflation risks since the last meeting of the CBA. The processes taking place in global trade are causing fluctuations in commodity and financial markets. In these circumstances, import inflation is considered an external risk factor for inflation. This factor depends on inflation in trading partners, on the one hand, and on the dynamics of the nominal effective exchange rate, on the other.
The main internal risk factor that can increase inflation is the activation of cost factors and excessive growth in aggregate demand. In this regard, the possible effects of government spending and consumer loans on aggregate demand and prices in the medium term should be constantly monitored.
According to the baseline scenario, annual inflation is projected to be within the target in 2025 and 2026. Thus, according to the July forecasts under the baseline scenario, annual inflation is expected to be 5.7 percent in 2025 and 5.3 percent in 2026. The continued alignment of this year’s inflation forecast with the target, along with sustained stability in the foreign exchange market, creates the conditions for monetary policy easing.
The next decisions on the parameters of the interest rate corridor will be made depending on the dynamics of actual and forecasted inflation, external and internal risk factors. The CBA will continue to use all the tools at its disposal to ensure price stability.
This decision will come into effect on July 24, 2025. The next decision regarding the parameters of the interest rate corridor will be announced on September 10, 2025.
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