BAKU, Azerbaijan, July 31. The Central Bank of Azerbaijan (CBA) has kept the refinancing rate unchanged by the decision of the Management Board.
This is reflected in a report by the CBA.
The report indicates that all parameters of the interest rate corridor were left unchanged. Thus, the refinancing rate was kept at 6.5%. The lower limit of the interest rate corridor was set at 5.5%, and the upper limit was set at 7.5%.
According to the CBA, when making a decision on the parameters of the interest rate corridor, the dynamics of actual and forecasted inflation, as well as the processes taking place in the domestic financial market, were taken into account. Changing the inflation forecast upwards necessitates tightening monetary policy, while the significant excess of supply over demand in the foreign exchange market supports a soft monetary policy. The balancing of these factors necessitates keeping the parameters of the interest rate corridor unchanged.
Annual inflation is within the target and is moving in accordance with the forecast trajectory under the baseline scenario. In June 2026, 12-month inflation was 5.8%. The annual price increase was 7.1% for food products, alcoholic beverages, and tobacco products, 5.6% for paid services, and 3.8% for non-food products. Annual core inflation was 5.5%.
In the past period of the current year, supply in the foreign exchange market significantly exceeded demand. This was reflected in both cash and non-cash segments. In the 6 months of 2026, the purchase of cash foreign currency from customers by exchange offices exceeded sales by $482 million. The dollarization level of deposits of resident individuals decreased by 3.8 percentage points over the past 12 months, reaching 25.6% in June 2026.
In the conditions of a sharp decrease in demand in the foreign exchange market and a significant increase in supply, the CBA carried out a purchase-oriented intervention. In the past period of the current year, the CBA's currency reserves grew by $2.2 billion or 19.5%, amounting to $13.8 billion.
External sector indicators remain favorable. According to customs statistics, in the first half of 2026, the country's foreign trade recorded a positive balance of about $8 billion. According to preliminary data, from January through June, the balance on money orders (i.e., the difference between receipts and disbursements) amounted to $540.6 million, an increase of 82.8% compared to the corresponding period of the previous year. The CBA's forecast for the current account surplus for the end of 2026 and 2027 has been revised upwards. This is due to the increase in global energy prices this year, as well as the continuation of positive trends in the export of non-oil and gas goods and services.
Monetary policy instruments are applied taking into account the processes taking place in financial markets and liquidity indicators in the banking system. Short-term interest rates in the unsecured money market are formed within the CBA's interest rate corridor. Thus, the average daily indicator of the AZIR rate was 6.43% in May and June 2026, and 6.39% in the last period of July. The structural liquidity surplus of the sector (the difference between the CBA's liabilities to the banking system and its claims on banks) without taking into account the funds that must be kept as mandatory reserves) reached 6 billion manat ($3.5 billion) at the end of the first half of the current year, increasing by 2.1 times compared to December of last year. This indicates that the lending potential of banks is quite high. To manage liquidity, the CBA mainly uses 7-day deposit operations. The share of these operations in the structure of the sterilization portfolio for open market operations as of the end of June was 84.3%. In addition, regular auctions are held to place CBA notes. Over the past 3 months, a decrease in the profitability of notes for all maturities, as well as in the medium-term and long-term parts of the yield curve, was recorded. At the same time, interest rates on newly attracted manat term deposits and savings decreased in June of this year compared to July of last year (the month when the discount rate was reduced).
The CBA forecasts that annual inflation will be within the target in the medium term. Thus, according to the July forecasts under the base scenario, annual inflation is expected to be 6.1% at the end of 2026, 6% 12 months later (i.e., in June 2027), and 5.8% at the end of 2027. Thus, annual inflation is expected to return to the target from the second half of 2027. The deviation of inflation expected by the end of 2026 from the target is at the level of forecast error. The change in the inflation forecast towards an increase is mainly due to the intensification of the effects of direct and indirect external cost factors, which is not permanent in the medium term.
In a complex global geopolitical environment, the risk of rising energy and food prices and thus expanding inflation imports from trading partners remains high. The nominal effective exchange rate of the manat, which is the transmission of inflation in partners to domestic prices will also depend on the dynamics of strengthening of the manat. The possibility of changing the CBA's inflation forecasts in the next period mainly depends on the scale of realization of these risks. Domestic demand factors are unlikely to create inflationary pressures against the background of the current fiscal and monetary policy.
Decisions on the interest rate corridor for the rest of the current year will be made taking into account the inflation forecast and the dynamics of macroeconomic indicators. Considering the uncertainties in the global environment, forecasts of macroeconomic indicators in several scenarios will be considered. When making decisions on the parameters of the interest rate corridor, the processes taking place in the foreign exchange market and the dynamics of liquidity in the banking sector will also be taken into account. In addition, when making decisions, the sustainability of strengthening pressures on the manat exchange rate and the scale of the currency surplus will also be taken into account.
Information on the next decision on the parameters of the interest rate corridor will be made public on September 23, 2026.
