BAKU, Azerbaijan, March 12. The Board of the Central Bank of the Republic of Azerbaijan has decided to keep the refinancing rate at 7.25%, with the lower bound of the interest rate corridor at 6.25% and the upper bound at 8.25%, Trend reports.
"The decision to keep the refinancing rate unchanged was made taking into account the fact that actual and projected inflation is within the target corridor (4±2 percent), as well as analyzing the global economic situation, macroeconomic trends, and transmission of the impact of monetary policy on the economy.
Since the last meeting, annual inflation has remained within the target range (4±2percent). In January 2025, the 12-month inflation rate was 5.4 percent. The annual price growth during this period was five percent for food products, 2.6 percent for non-food products, and 8.4 percent for services. Annual core inflation was 4.3 percent.
In recent months, there has been overall stability in the external factors affecting inflation. According to the International Monetary Fund, in February 2025, the annual growth rate of the commodity price index was 8.5 percent. The weighted average annual inflation of trading partners in January of this year was 10.7 percent compared to the same month last year. The nominal effective exchange rate of the manat in the non-oil and gas sector decreased by 1.5 percent in the first two months of 2025 after strengthening by nine percent in 2024.
Foreign sector indicators remain favorable. In 2024, the current account balance surplus was $4.7 billion, or 6.3 percent of GDP. According to the State Customs Committee, in January 2025, a positive balance of $1 billion was recorded in the foreign trade balance, which is 40.5 percent higher than the same period last year. According to the latest estimates, the current account forecast for the end of 2025 is likely to improve compared to the forecast for 2024 and earlier.
Monetary policy tools are applied considering the processes occurring in the financial markets and changes in the liquidity position of the banking system. On the short-term money market, average rates remain within the Central Bank's interest rate corridor. The reduction in government account balances at the end of last year had an upward effect on banking system liquidity. As a result, interbank money market rates decreased at the beginning of this year compared to the peak level (in December 2024, 1D AZIR was 7.68 percent).
Thus, in January and February, the average daily 1D AZIR was 0.6 percentage points and 0.2 percentage points lower compared to December of the previous year. This year, work continues to improve the operational framework of monetary policy. In February 2025, changes were made to the conditions for conducting standing operations and open market operations.
Since the last meeting, there have been no significant changes in the balance of inflation risks. Potential inflationary pressures may arise from global risks, such as existing geopolitical tensions and trade wars, which could lead to volatility in international commodity markets.
High global uncertainty, especially in certain countries, necessitates a pause in changing interest rate corridor parameters to assess the impact of exchange rate changes and tariff hikes on inflationary processes.
However, internal risk factors that could increase inflation include cost pressures and excessive growth in aggregate demand. Credit activity's potential influence on price stability is also continuously monitored.
Overall, the current monetary policy is aimed at keeping inflation within the target range and stabilizing inflation expectations. According to the baseline scenario, the forecast remains unchanged, with annual inflation expected to stay within the target range (4±2 percent) in 2025 and 2026.
Further decisions regarding the interest rate corridor parameters will depend on the dynamics of actual and forecasted inflation, as well as external and internal risk factors. The Central Bank will continue to use all available tools to ensure price stability. The possibility of lowering the interest rate corridor parameters may be considered if actual and forecasted inflation decreases. However, the Central Bank will respond adequately if inflationary risks emerge.
Information about the next decision regarding the interest rate corridor parameters will be announced on April 23, 2025, and a press conference will be held accordingly," the CBA statement reads.