Azerbaijan central bank holds rate corridor, raises inflation forecast

Azerbaijan’s central bank kept all parameters of its interest rate corridor unchanged, citing a balance between rising inflation risks and a significant excess of foreign currency supply over demand.

The central bank raised its end-2026 inflation forecast to 6.1%. It expects inflation at 6% in June 2027 and 5.8% at the end of 2027, with price growth returning to the target range in the second half of that year.

Annual inflation stood at 5.8% in June 2026. Prices for food, alcohol and tobacco rose by 7.1%, paid services by 5.6% and non-food goods by 3.8%. Core inflation was 5.5%.

Purchases of cash foreign currency from customers exceeded sales by $482 million in the first half of the year. The dollarisation rate of household deposits fell by 3.8 percentage points over 12 months to 25.6%.

The central bank intervened to buy foreign currency as supply increased and demand declined. Its reserves rose by $2.2 billion, or 19.5%, from the start of the year to $13.8 billion.

Azerbaijan’s foreign trade surplus approached $8 billion in the first half, while the net balance of money transfers rose 82.8% to $540.6 million.

The central bank also raised its current-account surplus forecasts for 2026 and 2027, citing higher global energy prices and continued growth in non-oil and gas exports.

The banking sector’s structural liquidity surplus reached 6 billion manats at the end of June, more than doubling from December.

N.Tebrizli