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The Management Board of the Central Bank of the Republic of Azerbaijan has decided to decrease the refinancing rate to 7% from 7.25%, the floor of the interest rate corridor to 6% from 6.25%, and the ceiling of the interest rate corridor to 8% from 8.25%.
The decision has been made considering the alignment of actual inflation with the forecast trajectory and its comparison with the target range (4±2%), recent global economic developments, the domestic macroeconomic environment, continued stability in the FX market, and the transmission of monetary policy decisions.
Annual inflation is moving along the projected trajectory. In June 2025, 12-month inflation stood at 6%. Annual price growth was 7% for food, alcoholic beverages, and tobacco products, 7.2% for services, as well as 2.8% for non-food products. Annual core inflation was 4.8%.
Although uncertainties surrounding external factors have persisted in recent months, their rising impact on inflation has not been significant. According to the International Monetary Fund, the commodity price index declined by 0.6% annually in June 2025, including a 4.2% decrease in the food price index.
In the past period of the current year, supply exceeded demand in the FX market overall, across both cash and non-cash segments. The continued decline in the dollarization of resident individuals’ deposits reflects positive expectations on exchange rate. External sector indicators, which are fundamental factor of FX market, remain favorable. According to the State Customs Committee, a foreign trade surplus of 1.4 billion US dollars was recorded in the first half of 2025. The Central Bank's forecast that the current account balance will be in surplus in both 2025 and 2026 remains unchanged.
Since the last meeting, short-term interest rates in the money market have remained stable. Rates in the unsecured segment of the money market have been moving within the Central Bank’s interest rate corridor. In June, the average daily AZIR index was 7.03% and 7.15% in the recent period of July. Since April, deposit auctions conducted by the Ministry of Finance to place available balances from the treasury account have exerted upward pressure on banking sector liquidity. In response, the Central Bank has been sterilizing a significant portion of excess liquidity through one-week operations to align the AZIR more closely with the refinancing rate. Activity in the money market remains high. In the first half of 2025, the volume of transactions in the unsecured segment rose by 26%, while the number of transactions increased by 55% compared to the same period of the previous year.
There have been no significant changes in the balance of inflation risks since the last meeting. Developments in global trade continue to cause fluctuations in commodity and financial markets. In this context, imported inflation remains an external risk factor, which is influenced both by inflation trends in trading partner countries and by the dynamics of the nominal effective exchange rate. The main internal risk factor for inflation is the activation of cost pressures and excessive growth in aggregate demand. Therefore, the potential impact of government spending and consumer lending on aggregate demand and prices over the medium term should be closely monitored.
Under the baseline scenario, annual inflation is projected to remain within the target range in both 2025 and 2026. According to the July forecast, annual inflation is expected to be 5.7% in 2025 and 5.3% in 2026. The alignment of inflation forecasts with the target and continued FX market stability provides grounds for easing monetary policy.
Further decisions regarding the parameters of the interest rate corridor will depend on the dynamics of actual and forecast inflation, as well as internal and external risk factors. The Central Bank will continue to employ all available tools to maintain price stability.
This decision takes effect on 24 July 2025. Information on the next decision regarding the parameters of the interest rate corridor will be published on September 10, 2025.
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