IMF: Azerbaijan's Central Bank should be prepared to take decisive measures against inflation

The International Monetary Fund (IMF) recommends that the Central Bank of Azerbaijan (CBA) consider raising its key interest rate if inflationary pressures caused by rising prices for imported food products continue to mount, Report informs referring to the IMF.

"Keeping the current policy rate on hold is consistent with the projected normalization of domestic demand and the closing of the output gap over the projection horizon. The rise in headline inflation foreseen in 2026 is largely driven by external drivers of food prices and inflation is expected to fall close to the mid-point of the target band by the end of 2027. However, given elevated external uncertainty, uncertainty surrounding the neutral rate estimates (assessed by staff to be around 2.25 percent, somewhat above the current real policy rate) and still developing monetary policy transmission, the CBA should stay prepared to respond firmly to inflation surprises. In particular, a more pronounced rise in the global commodity prices due to the ongoing war in the Middle East could raise inflation well above the CBA's target range," the IMF noted.

The IMF expects average annual inflation in Azerbaijan to reach 6% in 2026, 4.2% in 2027, 4.1% in 2028, and remain at 4% per year in 2029-2031.

The average annual inflation rate in Azerbaijan reached 5.6% in 2025, compared to 2.2% the previous year.

According to the Azerbaijani Ministry of Economy, average annual inflation in the country will be 4.8% in 2026 and 4.5% in 2027. According to the Central Bank's latest forecast, published in February 2026, annual inflation is expected to reach 5.5% this year and 4% in 2027.