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11 June 2025, Baku: The Management Board of the Central Bank of the Republic of Azerbaijan has decided to leave the refinancing rate unchanged at 7.25%, the floor of the interest rate corridor at 6.25%, and the ceiling at 8.25%.
The decision to keep the refinancing rate unchanged has been made considering the consistency of actual inflation with forecasted inflation trajectory, the comparison of forecasted inflation with the target range (4±2%), possible impacts of recent global economic developments, internal macroeconomic stance, and the transmission of the monetary policy.
Annual inflation is following the forecasted trajectory. In April 2025, 12-month inflation stood at 6.3%, and monthly inflation was 0.3%. Annual price hike was 7.6% for food products and services, 2.7% for non-food products. Annual core inflation stood at 4.8%.
Uncertainty regarding external factors affecting inflation has remained high in recent months. According to the IMF, in May 2025, the commodity price index decreased by 1% monthly and by 4.6% annually. In April 2025, average weighted annual inflation in trade partners was 9.6% year-over-year. In May 2025, non-oil-gas nominal effective exchange rate (NEER) of the manat remained stable year-over-year.
External sector indicators remain favorable. According to the State Customs Committee, foreign trade balance has remained in surplus over four months of 2025. The forecast that current account will be in surplus in 2025 and 2026 remains unchanged.
Monetary policy tools are applied based on financial market developments and changes in the liquidity position of the banking system. Interest rates in the unsecured money market move within the interest rate corridor of the Central Bank. The average daily 1D AZIR stood at 6.7 in May and in past period of June. The Central Bank, in close cooperation with experts from the EBRD (European Bank for Reconstruction and Development) has developed and approved new, more advanced regulations for the calculation of the index, considering the analysis of developments in the interbank money market and best practices. Liquidity in the banking sector has increased in consequence of auctions held by the Ministry of Finance to deposit available balances of the treasury account in commercial banks since April. As a result, it exerted downward pressure on AZIR. Notably, in most months of the previous year, the growth of treasury account balances had an upward effect on short-term interest rates. Against this backdrop, the Central Bank intensified its open market operations; a considerable portion of the rising liquidity was absorbed through one-week operations, which are becoming a key instrument of the Central Bank. To enhance the effectiveness of liquidity-absorbing open market operations, the monetary policy operational framework was adjusted: seven-day repo operations were replaced with seven-day deposit operations. The money market remains highly active. Over five months of 2025, the volume of transactions in the unsecured market jumped by 1.6 times and the number by 1.8 times year-over-year.
Changes in the balance of risks of inflation have been attributable to the external environment since the last meeting. Global trade developments have amplified volatility in commodity and financial markets. Against this backdrop, foreign risk factors include high inflation in major trading partners, a decline in the dollar index, and the limited appreciation of the NEER. As domestic risk factors, cost factors and overexpansion of aggregate demand may push inflation up. The Central Bank also attaches great importance to possible effects of lending activity on aggregate demand and prices. In general, the share of internal factors is estimated to be low in inflation forecasts for 2025-2026. The forecast, that annual inflation will be within the target in 2025 and 2026 under the baseline scenario, remains unchanged.
Overall, the current monetary policy aims to maintain inflation within the target range and stabilize inflation expectations. Reduced uncertainty in the external inflation environment may pave the way for a reduction in the refinancing rate at the next meeting.
Decisions regarding the parameters of the interest rate corridor will depend on actual and forecasted inflation, and the dynamics of external and internal risk factors. The Central Bank will employ all available tools to maintain price stability going forward.
Information regarding the next decision on the interest rate corridor parameters will be made public on 23 July 2025 through a related press-conference.
11.06.2025