The Central Bank of Azerbaijan has revised upward its inflation forecasts for 2026 and 2027, projecting inflation rates of 5.9% and 4.5% respectively, amid mounting global and regional economic pressures.

The increase is primarily attributed to rising global food prices, intensifying inflationary pressures among Azerbaijan’s trading partners, and weakening exchange rate dynamics. At the same time, ongoing geopolitical tensions continue to disrupt supply chains, driving up transportation and energy costs and further heightening inflation risks.

Against this backdrop, questions remain over whether the Central Bank’s current monetary policy tools will be sufficient to keep inflation within its target range.

Speaking to Bizimyol.info, Chairman of the Liberal Economists Center Akif Nasirli stated that while the Central Bank is attempting to contain inflation through monetary policy, its instruments alone may not be enough in the coming years.

According to Nasirli, the revised inflation outlook itself demonstrates that regulators acknowledge growing economic pressures.

“The increase in projected inflation to 5.9% in 2026 and 4.5% in 2027 indicates that the authorities recognize the intensifying risks,” he said. “The rise in global food prices, stronger inflationary pressures in trading partner countries, and the weakening of the exchange rate automatically increase the cost of imported goods, and this effect is felt more sharply in the Azerbaijani economy.”

Nasirli also emphasized that geopolitical tensions are creating additional disruptions in supply chains by increasing transport and energy expenses.

He noted that the Central Bank’s primary instruments remain the key interest rate and exchange rate policy. Raising the policy rate can reduce consumer demand by making loans more expensive, while maintaining a stable manat may partially curb imported inflation. However, despite cautious tightening measures implemented so far, these steps have not fully neutralized inflationary pressures.

The economist added that Azerbaijan’s foreign currency reserves provide authorities with room to intervene in the market if necessary.

“However, the main problem is that monetary policy primarily affects demand-driven inflation,” Nasirli explained. “Supply shocks such as rising global food prices, higher transport costs, and increasing energy prices cannot be fully eliminated through interest rate tools alone.”

He warned that excessive rate hikes could weaken economic activity, lending, and investment, while artificially maintaining a stable exchange rate over the long term could put pressure on foreign currency reserves and reduce export competitiveness.

Nasirli stressed that controlling inflation requires close coordination between the Central Bank and the government’s fiscal policy.

In his view, measures such as budget spending management, subsidies, customs policy reforms, boosting domestic production, and strengthening food security are all critical components of a broader anti-inflation strategy. He also highlighted the importance of reducing logistics costs and finding alternative solutions to supply chain disruptions.

According to the economist, although the Central Bank plays a key role in containing inflation, monetary policy alone will not be sufficient if global food and energy shocks persist and pressure on the national currency intensifies.

“In such a scenario, maintaining the 5.9% inflation target solely through interest rate policy will be extremely difficult,” Nasirli concluded. “This makes coordinated implementation of monetary, fiscal, and structural policies a necessity.”

The remarks come as Azerbaijan, like many emerging economies, continues to navigate global inflationary volatility and geopolitical uncertainty.

Irada Jalil, Bizimyol.info