Finance
ING expects the Central Bank of Azerbaijan to hold its key rate at 6.5% for an extended period, according to a regional note reported by Interfax on September 4. The bank's body text puts the hold at least until the end of 2028, while the headline points to 2029, so the exact horizon is uncertain, but the message of prolonged stability is clear.
ING calls Azerbaijan the "clearest beneficiary" of global instability in hydrocarbon supply. Its argument: the budget and current account are in high surplus, the manat remains firmly pegged, and inflation is rising from a low base of 4–6%, mostly because of cost pressures rather than demand.
What the central bank has done
The central bank's own decisions fit that view. On September 23 it held the discount rate at 6.5% for the fourth straight meeting, the lowest level since September 2021, while cutting the lower bound of its interest-rate corridor by 0.5 percentage points to 5% and leaving the upper bound at 7.5%, according to Trading Economics. The wider corridor is meant to encourage interbank trading amid excess liquidity.
Annual inflation eased to 5.7% in August from 5.8% in July, within the target range, while core inflation was 5.1%. The bank cited global energy and food prices as the main upside risks and said future decisions will depend on inflation, foreign-exchange conditions and banking liquidity.
Neighbours diverge
ING also expected Armenia's central bank to hold. That call was overtaken on September 15 when Yerevan raised its policy rate by 25 basis points to 6.75% amid 6.7% second-quarter growth. The divergence highlights Azerbaijan's different position: its economy is growing at only about 1.6% this year, according to the Asian Development Bank, because oil output is falling, which leaves little demand pressure for the central bank to resist.
Implications for business
A pegged manat, a stable policy rate and a budget surplus make Azerbaijan a predictable environment for lenders and importers. The caveat is that the surplus depends on hydrocarbon revenues at a time when oil volumes are falling and gas export revenue slipped 4.8% in the latest reporting period. ING's view assumes that energy prices stay supportive.
Investors should watch the October inflation print, any further change to the corridor and the pace of non-oil growth. If hydrocarbon prices weaken, the case for an extended hold becomes less comfortable.
