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The Management Board of the Central Bank of the Republic of Azerbaijan decided to keep all interest rate corridor parameters unchanged.
The decision has been made considering the alignment of actual inflation with the forecasted target range (4±2%), risks pushed by heightened geopolitical tensions in the region, the current stance in the global and domestic financial markets, domestic macroeconomic developments, as well as the transmission mechanism of monetary policy decisions to the real sector.
Currently, annual inflation is within the target. In February 2026, 12-month inflation stood at 5.7%. Annual price rise was 6.8% on food, alcoholic beverages and tobacco products, 5.7% on paid services and 3.7% on non-food products. Annual core inflation stood at 5.6%. Observed inflation is primarily driven by external cost factors.
Over the past period of the current year the situation in the FX market remained stable. In January-February 2026, cash foreign currency purchases by exchange points exceeded sales by $51M. The dollarization level of resident individuals’ savings decreased by 2.8 percentage points over recent 12 months to 27.7%, reflecting optimistic exchange-rate-related expectations. On this backdrop, in Q1 2026, foreign exchange reserves of the Central Bank increased by 1.2% to $11.7B.
The key factor of the FX market equilibrium – the external sector indicators remain favorable. According to the State Customs Committee, the trade surplus amounted to $1.1B in January-February 2026. The Central Bank’s forecast regarding current account surplus by the end of 2026 and 2027 remains unchanged. Recent increases in prices for key export commodities have raised the likelihood of a widening current account surplus.
Monetary policy tools are applied in response to financial market developments and liquidity position of the banking system. Interest rates in the unsecured money market move within the Central Bank’s interest rate corridor, closely aligned with the refinancing rate. The latest decision on the cut of the interest rate corridor parameters was accompanied by the drop in AZIR. While the average daily level of the AZIR index was 6.70% in January 2026, it dropped to 6.54% in February and to 6.47% in March. The yield curve and the yield on CBA notes have decreased since the last meeting. The Central Bank minimized the effect of autonomous factors on AZIR index with its one-week open-market operations.
Under the baseline scenario, the projection that annual inflation will remain within the target band at end-2026 and in 2027 is unchanged. At the same time, recent dynamics suggest that the inflation outlook for 2026 is subject to upward revision.
Factors that could exert upward pressure on the balance of inflation risks have intensified since the previous meeting. The escalation of regional tensions has contributed to rising prices and increased volatility in global commodity and financial markets. On this backdrop, the main external risk relates to the pass-through of higher import prices to domestic inflation. Disruptions in global oil and gas supply chains, increases in energy prices, and rising logistics costs may add to inflationary pressures in trading partner economies. The extent of the pass-through to domestic inflation will depend on inflation developments in trading partners, as well as movements in the nominal effective exchange rate. Among domestic factors, cost-side pressures remain a key source of inflation risks.
Decisions on the interest rate corridor parameters will depend on the direction of forecasted and actual inflation, and updated results of macroeconomic analyses. The Central Bank will continue to employ all available tools to ensure price stability. The Bank will take adequate policy measures should there be a risk of inflation deviating above the target range.
The next decision on the interest rate corridor parameters will be made public on 6 May 2026 and be accompanied by a press-conference.
