BAKU, Azerbaijan, March 12. The Board of the
Central Bank of the Republic of Azerbaijan (CBA) has decided to
keep the refinancing rate at 7.25 percent, with the lower bound of
the interest rate corridor at 6.25 percent and the upper bound at
8.25 percent, 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.
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