Although conditions are gradually forming for monetary easing, the regulator is likely to take a wait-and-see approach due to lingering fiscal and external risks, News.Az reports, citing ING.
ING analysts note that Azerbaijan’s growing external buffers are providing greater insulation for the manat’s 1.70 per U.S. dollar peg, even as the country’s trade surplus continues to narrow.
Azerbaijan’s full-year trade surplus for 2025 fell below $1 billion, while softer global oil price expectations increase the risk of a negative current account balance in 2026. However, ING says the probability of this translating into pressure on the manat has declined significantly.
A stronger-than-expected 2.6% consolidated budget surplus last year helped boost liquid assets held by State Oil Fund of Azerbaijan (SOFAZ) and the central bank to around 110% of GDP, giving policymakers substantial capacity to defend the currency if required.
The recent appreciation of floating regional currencies, including the Kazakhstani tenge and Uzbekistani soum, has also eased relative pressure on Azerbaijan’s pegged manat, making it less of an outlier in the region.
On monetary policy, ING describes the forward-looking indicators as relatively dovish. Slower-than-expected 1.4% GDP growth in 2025, easing inflation at 5.2–5.3% year-on-year, and a declining share of foreign currency deposits in the banking system all support the case for eventual rate cuts.
Still, the bank urges caution. The consolidated fiscal balance excluding SOFAZ oil revenues widened to 11% of GDP last year due to higher public spending, while the external trade balance deteriorated as imports outpaced exports.
“These trends argue for maintaining the current stance in the near term,” ING said, adding that any interest rate cuts would depend on clear evidence of sustained disinflation and stronger fiscal discipline.
As a result, ING expects the Central Bank of Azerbaijan to leave the policy rate unchanged at 6.75% at its February 4 meeting, reinforcing stability in both monetary policy and the exchange rate.
