BAKU, Azerbaijan, June 14. Inflation in Azerbaijan remains moderate and within the Central Bank’s target range, according to a new report from Fitch Ratings. However, the agency does not expect interest rate cuts before 2026, Trend reports.
Fitch said annual inflation rose to 5.9% in May 2025, driven by the low base effect and an increase in the minimum wage earlier this year. Average inflation is projected at 5.3% for 2025, easing to 4.6% in 2026 — both within the Central Bank’s target band of 4% ± 2 percentage points.
Despite improvements in liquidity management and efforts to introduce more exchange rate flexibility, Fitch does not foresee a shift to looser monetary policy in the near term. The government continues to prioritize the de facto peg of the manat to the US dollar.
On the economic front, Azerbaijan is experiencing moderate growth. Real GDP grew by 1.5% year-on-year in the first five months of 2025, with the non-oil sector expanding by 3.9%. Economic growth is forecast at 3.5% for 2025, down from 4.1% in 2024, and expected to slow further to 2.5% in 2026. Public investment and non-oil sector development remain the main drivers of growth.
Azerbaijan’s fiscal position remains strong. As of the end of Q1 2025, gross public sector debt stood at 20.4% of GDP, and is projected to average 21.5% in 2025–2026 — among the lowest levels in Fitch’s investment-grade sovereign category. Robust fiscal buffers, including government deposits (10.4% of GDP in 2024) and assets held by the State Oil Fund (81% of GDP), provide a solid cushion against external shocks.
Fitch also highlights a sustained decline in external debt. The share of foreign currency debt fell to 32% by the end of 2024, down from 95% in 2017, while the total external debt volume has dropped by 41.5%.