Central Bank of Azerbaijan could hold key rate at 6.5% until at least 2029 - ING Group

BAKU. Sept. 4 (Interfax) - ING Group expects the Central Bank of Azerbaijan to hold its key rate at 6.5% for an extended period, at least until the end of 2028.

ING said in a review of four CIS countries - Azerbaijan, Uzbekistan, Kazakhstan and Armenia - that Azerbaijan is the "clearest beneficiary" amid global instability in the hydrocarbon supply market. "Stronger hydrocarbon revenues reinforce already substantial fiscal and external buffers, leaving the budget and current account in high surplus while keeping the manat firmly pegged," it said.

Kazakhstan receives a less straightforward boost. "Higher oil prices support nominal export receipts, but disruptions to the CPC route have forced the authorities to lower the 2026 production target. Even so, according to our estimates, annualized crude exports remain around 10% above their 2021-2022 post-pandemic level, cushioning the external accounts and the tenge," ING said.

Uzbekistan's sum is also steady. "Gold exports [from Uzbekistan] restarted at $1.3 billion in July, restoring an important source of foreign currency supply and partly offsetting softer gold prices. Persistently high real interest rates provide additional support for capital inflows," ING said.

ING said higher global energy and food prices, combined with upward pressure on core rates, raise risks to inflation and policy-rate trajectory across the four CIS countries.

"Inflation in Armenia and Azerbaijan is rising from a relatively low base of 4%-6%. Much of the incoming pressure is cost-driven, reducing the urgency for an immediate policy response. In Armenia, continued dram strength and improved fiscal performance provide additional disinflationary offsets. We expect both central banks to keep policy rates unchanged at 6.50% for an extended period," ING said.

Kazakhstan and Uzbekistan are on the opposite side of the spectrum, as their price growth is currently slowing from much higher levels. "Kazakhstan's annual CPI returned to single digits (9.8% year-on-year) in August, keeping a gradual easing cycle in play despite renewed external price risks. Uzbekistan's central bank has also indicated that there may be room for a rate cut in 2026, as inflation gradually slowed to 6.4% YoY in July from double digits in 2024-2025 amid fiscal consolidation and the rally of the sum," ING said.

"FX resilience should allow selective policy rate cuts in Kazakhstan and Uzbekistan, whereas Armenia and Azerbaijan are likely to remain on hold," it said.