Fitch Solutions predicts moderate inflation in Azerbaijan over next decade

Fitch Solutions expects the annual inflation in Azerbaijan to remain below 5% over the next decade.

According to Report, citing Fitch Solutions (FS), a subsidiary of the international rating agency Fitch Ratings, the average inflation rate in Azerbaijan over the past ten years has been 5.5%. While consumer inflation remains at a high level due to rising food prices and the ongoing impact of the Russia-Ukraine war, which disrupted supply chains, inflationary pressure is expected to gradually ease in the coming years.

The rating agency does not anticipate significant pressure on the national currency exchange rate, as it is supported by stable export revenues from oil and gas sales. In the long term, inflation is expected to return to its average level, and the exchange rate is likely to remain relatively stable, according to FS.

Fitch Solutions projects inflation in Azerbaijan to be 4% in 2025, rising to 4.4% in 2026 and reaching 4.7% in 2027. Starting in 2028, inflation is expected to slow down, dipping to 4.4%. By 2029, inflation is forecasted at 2.7%, with a further decline to 1.7% in 2030. Inflation will continue to decelerate, with projections for 2031 at 1.6%, 1.3% in 2032, 0.7% in 2033, and just 0.1% by 2034.

The Central Bank of Azerbaijan (CBA) has set an inflation target range of 4±2%.

FS notes that control over the exchange rate remains CBA’s key tool for ensuring price stability.

Unlike the situation in 2015, when Azerbaijan faced a sharp devaluation of the manat due to falling global oil prices, the regulator now has more resilient positions to manage inflation, FS report says, adding, however, that the high level of dollarization (48.4% of bank deposits are denominated in foreign currencies) reduces the effectiveness of monetary policy, which could lead to prolonged inflationary pressure.

Additionally, according to it, CBA is implementing a four-year plan for transforming its monetary policy, which aims for inflation targeting by 2026, which could bring greater flexibility to the manat exchange rate on the currency market.