Baku: The Central Bank of Azerbaijan has announced its monetary policy objectives for 2026, aiming to maintain annual inflation at 4±2%.
According to Azeri-Press News Agency, this target was outlined in a statement detailing the main directions of the country's monetary policy for the upcoming year. The central focus will be on the consumer price index changes, as calculated by the State Statistical Committee over the past 12 months.
Managing inflation within this target range is pivotal for ensuring sustainable economic growth. It plays a crucial role in safeguarding the incomes and savings of households and companies, while also reinforcing confidence in the national currency and its purchasing power. This approach is intended to reduce the reliance on foreign currency-denominated assets and liabilities, thereby bolstering the economy's resilience to external changes.
The Central Bank's latest forecasts project an annual inflation rate of 5.7% for 2026, which falls within the target range. These projections align with forecasts from the government, international financial institutions, and rating agencies, suggesting that inflation will remain largely within the desired range. Throughout 2026, the Central Bank plans to update its inflation forecasts quarterly, considering a comprehensive analysis of inflation factors, while continuing to assess inflation expectations from households and businesses through surveys.
Decision-making on monetary policy will involve a thorough evaluation of domestic and external factors, as well as potential risks to the national economy and inflation. In recent years, external factors have significantly contributed to the inflation risk balance, with geopolitical tensions and global trade instability creating uncertainties in commodity and financial markets. Import price pass-through poses a major external risk, contingent on trading partners' inflation developments and the nominal effective exchange rate dynamics.
Domestically, risks are primarily influenced by supply-cost factors. However, a conservative macro-fiscal framework and anticipated growth in credit allocations are expected to mitigate the risk of excessive aggregate demand growth in the medium term. Given these uncertainties, the Central Bank will continue preparing macroeconomic forecasts under both baseline and alternative scenarios to ensure a flexible policy response if inflation risks materialize.
Monetary policy in 2026 will operate within the existing framework, with exchange rate stability serving as the primary anchor for price stability. A forecasted surplus in the current account of the balance of payments will support foreign exchange market equilibrium, with the surplus expected to reach USD 3 billion, or 3.7% of GDP, under the baseline scenario.
The Central Bank will also prioritize maintaining foreign currency reserves according to adequacy criteria and enhancing their management. Developments in financial markets and banking system liquidity will inform the application of monetary policy instruments to neutralize non-monetary effects on monetary conditions. Coordination with macroprudential policy through internal collegiate bodies, including the Monetary Policy and Financial Stability Committee, will continue.
Additionally, the macroeconomic impacts of climate change and support for 'green finance initiatives' will remain a focus, with ongoing assessments of climate change effects on inflation, economic growth, and the financial sector. Efforts will also persist in defining policy objectives for the introduction of the Central Bank's digital currency, involving priority use case identification, risk and benefit assessment, and phased implementation planning aligned with a broader financial sector strategy.