The Central Bank of Azerbaijan announced its latest decision on the refinancing rate today, and the main direction of the decision coincided with the forecast we published in Azernews on September 17. More precisely, the Central Bank did not cut the refinancing rate, but lowered the lower bound of the interest rate corridor from 5.5% to 5%. The refinancing rate was kept at 6.5%, while the upper bound of the corridor remained at 7.5%.
At first glance, this is not an interest rate cut, and it would not be correct to present it as such. However, the substance of the decision is not limited to the fact that the 6.5% refinancing rate remained unchanged. In fact, by reducing the lower bound of the interest rate corridor by 50 basis points, the Central Bank has created somewhat greater room for softer monetary conditions to emerge in the money market.
The key issue here, however, is the environment in which the decision was made. According to the Central Bank's statement, structural liquidity surplus in the banking sector reached AZN 6.3 billion at the end of August. This figure is 2.2 times higher than at the end of 2025.
At the same time, interest rates on key indicators in the unsecured money market have also moved downward: the average daily AZIR stood at 6.39% in July, 6.28% in August, and 6.02% in the period elapsed in September. This means that one of the main challenges currently facing the Central Bank is not the high cost of money, but ensuring that the high liquidity that has emerged in the banking system is transmitted to the market more effectively. The reduction of the lower bound is justified precisely by this objective.
The Central Bank says that widening the corridor should reduce its participation in the money market and create conditions for banks to conduct more active operations with each other. It is interesting to look at which part of the forecast we put forward on September 17 has materialized. The main idea of that forecast was that the Central Bank would maintain a “wait-and-see” position through the end of 2026 or could cautiously move toward easing in order to support economic activity.
Today's decision stands between these two approaches: the refinancing rate was left unchanged, but the lower part of the interest rate corridor was reduced. In other words, the Central Bank has not yet entered a conventional interest rate-cutting phase. However, today's decision shows that some room for such a step in the future has been created.
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