Azerbaijan Central Bank Holds Rate at 6.5% and Raises Current Account Forecast

The Central Bank of Azerbaijan kept its refinancing rate at 6.5% on 29 October and left the interest rate corridor unchanged, with the floor at 5% and the ceiling at 7.5%, Trend reported. The bank also raised its forecast for the current account surplus to $8.5 billion in 2026, more than 10% of GDP, and to $5.4 billion in 2027, more than 6% of GDP.

The next decision on the rate is scheduled for 23 December 2026. Thursday's hold comes as annual inflation eases slowly but stays above the middle of the bank's target range of 4% plus or minus 2 percentage points.

Inflation inside the band, above the midpoint

Annual inflation was 5.5% in September, 0.2 percentage points lower than in August, according to the bank's statement as reported by 1news.az. Annual core inflation was 4.9%. Prices of food, alcohol and tobacco were up 6.9% year on year, paid services 5.1% and non-food products 3.6%. The bank said the decision took into account headline and core inflation, inflation expectations and the balance of risks, as well as conditions in the foreign exchange market, liquidity in the banking sector and the direction of global monetary policy.

The bank now expects inflation of 5.9% at the end of both 2026 and 2027. Compared with its July projections, the 2026 forecast was cut by 0.2 percentage points and the 2027 forecast was raised by 0.1 percentage points.

Official statistics show slow growth alongside firm prices. The State Statistical Committee's monthly indicators put real GDP growth at 1.5% in January to September 2026, with the oil and gas economy down 1.2% and the non-oil and gas economy up 2.6%. Consumer prices in the first nine months were 5.7% higher than in the same period of 2025.

External accounts and liquidity

The bank's statement points to a strong external position. The foreign trade surplus reached $10.5 billion in January to September. Net remittances were $830.5 million, up 70% year on year. The central bank's foreign exchange reserves stood at $15.4 billion, up 33.4% over the nine months.

Supply of foreign currency exceeded demand in both the cash and non-cash segments. Over nine months, exchange offices bought $759 million more in cash foreign currency from customers than they sold. Dollarization of resident deposits fell to 25.7% in September, 3.3 percentage points lower than a year earlier.

Liquidity in the banking system remains ample. The structural liquidity surplus was 6.2 billion manat at the end of September, 2.2 times its level at the end of December 2025. The average daily AZIR interbank rate was 6.31% in August, 5.93% in September and 5.99% so far in October. Seven-day deposit operations made up 66.4% of the bank's sterilization portfolio at the end of September.

What it means for business

For borrowers, an unchanged rate means no relief on funding costs before the end of the year. With the bank's own forecast putting inflation at 5.9% at the end of both 2026 and 2027, close to the top of the target range, the case for a cut at the December meeting rests on price growth slowing faster than the bank projects.

For importers and companies with foreign currency exposure, the figures describe a manat backed by a large current account surplus, rising reserves and falling deposit dollarization. The fiscal position adds to that picture: CBJ reported that Azerbaijan's strategic currency reserves cover its external public debt 19.8 times, and that the State Oil Fund's assets reached $74 billion at the end of September.

The weaker part of the picture is output. With the oil and gas economy contracting and the non-oil economy growing 2.6% in nine months, the central bank is holding policy steady while growth stays modest. Its next decision is due on 23 December.