July 23, 2025 – Baku
The Central Bank of Azerbaijan (CBA) has lowered its key interest rate by 25 basis points—from 7.25% to 7%—as part of a broader strategy to ease monetary policy amid favorable inflation and currency market trends.
According to a statement from the CBA, the lower boundary of the interest rate corridor was reduced from 6.25% to 6%, while the upper limit was adjusted from 8.25% to 8%. The new rates take effect from July 24.
Inflation to Stay Within Target
CBA projects annual inflation to remain within its target range in 2025 and 2026, forecasting a rate of 5.7% for 2025 and 5.3% for 2026. “Continued price stability and positive trends in the currency market provide room for monetary easing,” the statement noted.
Currency market data shows that supply has exceeded demand in both cash and non-cash segments this year. The ongoing de-dollarization of resident deposits also reflects rising public confidence in the national currency.
Strong External Position
According to CBA, Azerbaijan posted a $1.4 billion trade surplus in the first half of 2025, based on data from the State Customs Committee. The current account is expected to remain in surplus for both 2025 and 2026, with estimated surpluses of $3.6–4 billion this year and $3.5 billion next year.
The country’s strategic foreign exchange reserves now stand at $77.4 billion—up 9.4% since the start of the year, an increase of $6.7 billion. “Our reserves are sufficient to cover three years of imports, which is a very strong position,” noted Deputy Governor Togrul Kazimov.
Outlook for Oil, Gas, and Economic Growth
The central bank revised its average Brent oil price forecast for 2025 to $68.6 per barrel (down from $70), and for 2026 to $64.6. Natural gas is expected to average $299 per 1,000 cubic meters in 2025 and $290 in 2026.
On the macroeconomic front, the CBA now projects GDP growth of 3% in 2025—slightly down from its earlier 3.3% forecast. Growth in the non-oil sector is expected at 4.2%. For 2026, overall GDP growth is forecast at 2.2%, with non-oil growth at 4.3%.
The Ministry of Finance, in its own mid-term forecast, expects stronger GDP growth of 3.7% in 2025 and 3.2% in 2026. The oil and gas sector is projected to grow by 1.2% this year, while non-oil growth remains robust at 4.9%.
External Inflationary Pressures and Domestic Factors
Rising prices among Azerbaijan’s trading partners contributed to a 3.36 percentage point increase in domestic inflation. At the same time, a stronger manat helped reduce inflation by 0.52 points, while government and household consumption added 1.61 points. Food price increases, especially for agricultural products, accounted for 4.6 percentage points.
Financial Sector Developments
The CBA announced that all banks and non-bank credit institutions (NBCOs) will now have access to a new hedging mechanism. This tool allows hedging of up to 5% of a bank’s capital or 20% of its credit portfolio, with costs expected to range between 3% and 4%. No major credit risks are foreseen.
The central bank also reaffirmed that Russia remains one of Azerbaijan’s main non-oil trade partners, and no major shifts in trade or remittances have been observed.
Meanwhile, Azerbaijan’s banking sector is preparing to transition to the Az-QR payment standard by the end of October. This will enable QR code payments at all retail points. “This system is especially beneficial for micro and small businesses, reducing the need for costly POS terminals,” officials said.
