Azerbaijan: Central bank keeps policy rate unchanged at 9.0 percent, maintains slightly dovish message

CAUCASUS / CENTRAL ASIA - In Brief 20 Sep 2023 by Ivan Tchakarov

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The Central Bank of Azerbaijan kept the policy rate constant at 9.0 percent on Sep 20th. There was little uncertainty about this decision given the broader message that the central bank has been sending to markets in recent months. While it had signaled the end of the rate-hiking cycle already at its policy meeting on Jun 21st, it had then crafted a message of caution, stressing existing inflation risks. In that sense, today's decision to keep the policy rate unchanged at 9.0 percent did not offer any surprise and was much anticipated. The accompanying message preserved the slightly dovish undertones first introduced at the previous policy meeting on Jul 26th. In particular, policy makers pointed to the gradual, yet steady, moderation of inflation pressures. Indeed, headline inflation dropped under 10 percent already in Jul and printed at 8.0 percent YoY in Aug. While food inflation has been leading the decline, more recently we have also seen moderating price growth in the nonfood and services segments of the CPI. The central bank argued that the factors that are leading to lower inflation pressures have started to play a more important role in recent months. These include lower global food inflation, more modest price pressures in key trading partners, and tighter monetary policy. Policymakers maintained the view that the balance of inflation risks is now consistent with increased probability of price growth closing in on the 4 percent CPI target towards the end of the year or early 2024. We are less constructive on this point and see inflation appraoching the CPI target only next year. We continue to anticipate the first cut in the policy rate in early 2024 while re...