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How will the reduction of the policy rate affect the credit market?
How will the reduction of the policy rate affect the credit market?
Since the beginning of 2025, the Central Bank of Azerbaijan (CBA) has made several decisions regarding the policy rate.
In the first three decisions, the policy rate was set at 7.25%, and the interest rate corridor was maintained in the range of 6.25% to 8.25%. Although in those decisions the CBA stated that there was no need to change the rates due to inflation remaining within the central target range (4±2%) and global conditions being stable, a decision made on July 23 reduced the policy rate by 0.25 percentage points — from 7.25% to 7.00%. This rate cut raised a common question: will the reduction of the policy rate affect lending (credit) interest rates?
MP and economist Vugar Bayramov links the rate cut to inflation remaining within the projected range, as well as continued stability in the global economy and currency markets. According to the expert, macroeconomic stability — including financial stability — was maintained in the first half of 2025. Additionally, inflation staying within forecasted limits created an opportunity to review the parameters of the interest rate corridor.
The 0.25 percentage point reduction is considered a minor adjustment by the economist. As for whether this change will affect lending rates, Bayramov says that overall, the Central Bank’s decision regarding the policy rate and the interest rate corridor will not have a significant impact on the credit market. Looking at the broader picture, the CBA’s policy rate does not have a strong influence on lending interest rates.
The economist also agrees with the view that the CBA’s latest decision aligns with the current balance in both the currency and consumer markets, and acknowledges that there has been a recent increase in consumer loan interest rates. Clearly, this situation is not desirable in terms of the growing volume of non-performing loans and the increased credit burden on citizens. However, the CBA’s policy rate cut is unlikely to have a strong effect on credit interest rates or other financial instruments.
Since the beginning of 2025, the Central Bank of Azerbaijan (CBA) has made several decisions regarding the policy rate.
In the first three decisions, the policy rate was set at 7.25%, and the interest rate corridor was maintained in the range of 6.25% to 8.25%. Although in those decisions the CBA stated that there was no need to change the rates due to inflation remaining within the central target range (4±2%) and global conditions being stable, a decision made on July 23 reduced the policy rate by 0.25 percentage points — from 7.25% to 7.00%. This rate cut raised a common question: will the reduction of the policy rate affect lending (credit) interest rates?
MP and economist Vugar Bayramov links the rate cut to inflation remaining within the projected range, as well as continued stability in the global economy and currency markets. According to the expert, macroeconomic stability — including financial stability — was maintained in the first half of 2025. Additionally, inflation staying within forecasted limits created an opportunity to review the parameters of the interest rate corridor.
The 0.25 percentage point reduction is considered a minor adjustment by the economist. As for whether this change will affect lending rates, Bayramov says that overall, the Central Bank’s decision regarding the policy rate and the interest rate corridor will not have a significant impact on the credit market. Looking at the broader picture, the CBA’s policy rate does not have a strong influence on lending interest rates.
The economist also agrees with the view that the CBA’s latest decision aligns with the current balance in both the currency and consumer markets, and acknowledges that there has been a recent increase in consumer loan interest rates. Clearly, this situation is not desirable in terms of the growing volume of non-performing loans and the increased credit burden on citizens. However, the CBA’s policy rate cut is unlikely to have a strong effect on credit interest rates or other financial instruments.