BAKU, Azerbaijan, April 23. The refinancing rate has been kept unchanged at 7.25 percent, the lower limit of the interest rate corridor at 6.25 percent, and the upper limit of the interest rate corridor at 8.25 percent by the decision of the Board of Directors (Board) of the Central Bank of the Republic of Azerbaijan (CBA), Trend reports via the CBA.
The decision regarding the interest rate corridor was made based on an analysis of actual and forecasted inflation compared to the target range (4±2%), global economic and financial conditions, domestic macroeconomic trends, and the transmission of monetary policy decisions to the real sector.
Since the last meeting, annual inflation has remained within the target range. As of March 2025, twelve-month inflation stood at 5.9 percent, which aligns with projections. During this period, annual price increases were 6.5 percent for food, 2.8 percent for non-food products, and 7.5 percent for services. Core inflation was recorded at 4.5 percent.
External factors influencing inflation have shown increased volatility in recent months. According to the International Monetary Fund, the commodity price index declined by 2.7 percent on a monthly basis in March 2025 but rose 2.6% year-over-year. The weighted average annual inflation rate among Azerbaijan's trading partners was 9.6% in March, compared to the same month last year. The nominal effective exchange rate of the manat, excluding the oil and gas sector, appreciated by 1.8 percent year-over-year in March.
Indicators from the external sector remain favorable. The data obtained from the State Customs Committee shows that Azerbaijan recorded a positive trade balance in the first quarter of 2025. Forecasts suggest a surplus in the current account balance for the full year.
Monetary policy tools are being applied in response to financial market developments and changes in the liquidity position of the banking system. In the short-term money market, average interest rates remain within the CBA's corridor. In addition to standing facilities, one-week repo and reverse repo operations have been regularly conducted this year. The average daily level of the 1D AZIR index was 7.68 percent in the first ten days of April and 7.21 percent in the second ten days. A Treasury auction held on April 11, in which surplus funds from the single treasury account were deposited in systemically important banks, boosted banking system liquidity and slightly reduced the 1D AZIR index.
Changes in inflation risk balance since the last meeting have been largely driven by external conditions. Expanding trade wars and ongoing geopolitical tensions are increasing volatility in global commodity prices. Reciprocal tariff hikes are not only weakening global trade but also raising instability risks in financial markets. On the domestic front, potential inflationary pressures may arise from rising production costs and an excessive increase in aggregate demand. Additionally, the influence of credit activity on price stability remains a key consideration. Overall, the contribution of internal factors to inflation forecasts for 2025–2026 is assessed to be minimal.
Overall, the current monetary policy remains focused on containing inflation and anchoring inflation expectations. Under the existing policy framework, the forecast for annual inflation in 2025 and 2026 remains within the target range of 4±2 percent. Updated projections indicate annual inflation will hover around 5.3 percent this year and 4.3 percent next year.
Future decisions on the parameters of the interest rate corridor will depend on the dynamics of actual and projected inflation, along with internal and external risk factors. The Central Bank has reiterated its commitment to using all available tools to ensure price stability.
The next decision regarding the interest rate corridor parameters is scheduled to be announced on June 11, 2025.