Fitch Ratings: Dollarization, large liquidity surplus holding back interest rate cuts in Azerbaijan

Fitch Ratings believes that the scope for further interest rate easing in Azerbaijan is likely limited over 2026, Arvind Ramakrishnan, EMEA Sovereign Ratings director at Fitch Ratings, told Report.

The Board of the Central Bank of Azerbaijan (CBA) on February 4 approved a decision to lower the interest rate by 0.25 percentage points to 6.5%. The lower bound of the interest rate corridor was reduced from 5.75% to 5.5%, and the upper bound from 7.75% to 7.5%. The next decision on the parameters of the interest rate corridor will be published on April 2.

"Fitch considers the monetary policy framework in Azerbaijan to be evolving and still somewhat underdeveloped in terms of the effectiveness of policy rate transmission, notably given the structurally large liquidity surplus, and high (albeit reducing) levels of dollarization – as of end-2025, deposit dollarization stood at 36.8%. Fitch expects the effectiveness of transmission to improve over time, given efforts by the Central Bank of the Republic of Azerbaijan to boost its capacity, such as tweaks to the calculation of the 1-Day AZIR rate," he added.