Azerbaijan's Central Bank Seeks to Sterilize Excess Liquidity Amid Rising Bank Sector Liquidity

Strategic Insights -

The Azerbaijan Central Bank (CBA) has been conducting deposit auctions to manage the country's unified treasury account balances since April 2025, leading to a positive effect on the banking sector's liquidity position. To combat the excess liquidity, the CBA aims to sterilize it through one-week operations, with the goal of bringing the Azerbaijan Interbank Rate (AZIR) closer to the policy rate. The money market remains active, and the unsecured market has seen a significant increase in transactions, with a 26% rise in volume and a 55% increase in the number of transactions in the first six months of 2025 compared to the same period last year.

Key Takeaways:

  • The CBA has been conducting deposit auctions since April 2025 to manage the country's unified treasury account balances, leading to a positive effect on the banking sector's liquidity position.
  • The CBA aims to sterilize excess liquidity through one-week operations to bring the AZIR closer to the policy rate.
  • The policy rate was reduced to seven percent, the lower bound of the corridor to six percent, and the upper bound to eight percent by decision of the CBA Board.
  • The decision was made considering the alignment of actual inflation with the forecast inflation trajectory and its comparison to the target range (4+-2 percent), recent global economic developments, the domestic macroeconomic situation, and ongoing stability in the currency market.
  • The number of transactions in the unsecured market rose by 55% in the first six months of 2025 compared to the same period last year.
  • The volume of transactions in the unsecured market increased by 26% in the first six months of 2025 compared to the same period last year.
  • The interest rate corridor was lowered by 0.25 percentage points by the decision of the CBA Board.
  • The Central Bank of Azerbaijan aims to ensure a smooth transmission of monetary policy decisions.

Statistics:

  • The number of transactions in the unsecured market rose by 55% in the first six months of 2025 compared to the same period last year.
  • The volume of transactions in the unsecured market increased by 26% in the first six months of 2025 compared to the same period last year.
  • The policy rate was reduced to seven percent.
  • The lower bound of the interest rate corridor was reduced to six percent.
  • The upper bound of the interest rate corridor was reduced to eight percent.

Sources:

  • Trend News Agency (Baku -- 23 July 2025)
  • Central Bank of Azerbaijan (CBA)