ING: Growing external buffers support Azerbaijan's exchange rate stability

The Central Bank of Azerbaijan (CBA) expects to leave its key interest rate unchanged at 6.75% following its meeting on February 4, Report informs referring to the ING Group, the Netherlands' biggest banking group.

Despite the emerging conditions for monetary policy easing, the regulator is likely to adopt a wait-and-see approach, given ongoing fiscal and external risks.

"Growing external buffers offer more insulation for the currency peg. Azerbaijan's trade surplus continues to narrow – falling below $1 billion for the full‑year 2025 – while softer oil price expectations point to lingering risks of a negative current account in 2026. However, the likelihood of this triggering pressure on the manat's 1.70/USD peg has diminished.

A stronger-than-expected 2.6% GDP consolidated budget surplus last year boosted liquid assets at SOFAZ and the central bank to roughly 110% of GDP, giving policymakers ample capacity to defend the currency if needed. Meanwhile, the recent appreciation of floating regional currencies – including the Kazakhstani tenge and Uzbekistani soum – makes the pegged manat less of an outlier, easing relative pressure," reads the statement.

"On the rates side, the forward-looking indicators paint a relatively dovish picture. Slower-than-expected 1.4% GDP growth in 2025, easing inflation at 5.2-5.3% YoY, and a declining FX share in bank deposits all support the case for eventual monetary easing. Still, caution is warranted; the consolidated fiscal balance excluding SOFAZ fuel revenues widened to 11% of GDP last year due to higher spending, while the external trade balance deteriorated as imports outpaced exports.

These trends argue for maintaining the current stance in the near term, with any cuts contingent on firmer evidence of sustained disinflation and improved fiscal discipline. We expect the Central Bank of the Republic of Azerbaijan to leave the policy rate unchanged at 6.75% at the 4 February meeting," ING Group added.