Monetary policy, one of the main pillars of macroeconomic stability in the Azerbaijani economy, was formulated in 2025 towards preserving price stability, which is the Central Bank's primary mandate. Thus, keeping inflation within the target range, improving the operational framework of monetary policy, and strengthening the transmission of the interest rate channel were among the Central Bank's priorities.
According to the Central Bank's Statement on the main directions of monetary policy for 2026, the objective of monetary policy in the coming year will also be to maintain annual inflation at 4±2%.
Alongside this, a number of questions remain relevant amidst the uncertainties observed in global economic processes and energy markets. How might possible changes in oil prices affect the currency market? Is there a risk of devaluation, and what alternative plans exist if oil revenues decrease?
In a statement to Modern.az, Vugar Bayramov, a member of the Milli Majlis Committee on Economic Policy, Industry, and Entrepreneurship, noted that the Central Bank's position will remain decisive this year as well.
“The Central Bank has stated that it has not seen any threat to the manat exchange rate so far and, from this perspective, demonstrates a position aimed at preserving the national currency's exchange rate. Nevertheless, the state of the balance of payments and changes in world market oil prices will be one of the main factors affecting the currency market throughout 2026.”
The MP reminded that in Azerbaijan, the national currency's exchange rate is directly determined by the Central Bank's position:
“Because the Central Bank is the leading and decisive institution in both exchange rate policy and monetary-credit policy. Azerbaijan has not transitioned to a floating exchange rate regime; a regulated exchange rate regime is still applied in the country. This means that in countries without a floating exchange rate regime, the position of central banks holds particular importance for the national currency's exchange rate.
The Central Bank has repeatedly stated in its announcements that when making decisions, the situation in the balance of payments, the volume of foreign currency entering the country, and especially whether the balance of payments' saldo is positive or negative, are considered as key indicators.”
V. Bayramov added that assessments show that one of the most serious factors affecting the manat exchange rate is changes in world market oil prices:
“This factor directly influences the Central Bank's behavior and decisions. Approximately 80 percent of Azerbaijan's exports consist of energy products, with oil and oil products making up the main part of these exports. Therefore, the share of oil in the foreign currency inflow into the country is quite significant.
Nevertheless, the Central Bank's position remains decisive for the national currency's exchange rate throughout 2026,” the MP noted.
Commenting on the risk of devaluation, economic expert Khalid Karimli stated that in a scenario of decreasing oil revenues in 2026, no serious risk is apparent unless there is a sharp decline beyond the government's expectations:
“The government has projected the oil price at $65, and current market prices are consistent with these expectations. Currently, the price of a barrel of oil is forming around $65-66.
Overall, provided no sharp problems arise and no unimaginable changes occur in prices, the $55-65 interval can be considered a sufficiently comfortable and manageable level for the government. From this perspective, no particular risk is apparent for 2026 yet.”
According to the economist, the projection of a surplus in the balance of payments for 2026 also indicates that the budget is planned on this basis:
“Under current conditions, the decisions of the Tariff Council, increased taxes, and newly applied duties have already created a certain burden on the population. Examples include the introduction of income tax, the abolition of some concessions to reduce imports, the imposition of taxes on phones and cars, as well as several other tax increases.
In this context, the likelihood of the government being forced to resort to further devaluation appears low. The main risk here may be related not only to economic indicators but also to psychological factors. If panic does not arise among the population, pressure on the Central Bank does not form, and mass dollarization does not occur, no serious problem is expected.”
X. Karimli also emphasized that at the current stage, even oil at $50 is considered manageable for the government. In his opinion, overall forecasts indicate a range of $55-65, and the probability of oil prices falling below $50 is projected to be low:
“As for the non-oil sector, it is still too early to speak of significant development in this area. Non-oil exports amount to only around $3.5-3.7 billion, whereas imports reach $11-12 billion. This indicates that the export potential of the non-oil sector is insufficient.
Moreover, the non-oil sector is currently primarily sustained by budget expenditures and oil revenues. From this perspective, the non-oil sector does not yet play the role of an independent pillar for the economy. Although the government aims to create a turnaround in this direction in the future, the current situation does not provide grounds for such a claim.”
The economic expert also pointed out that devaluation is not a tragedy:
“That is, the government does not have specific plans to take extraordinary and harsh measures to prevent devaluation. Devaluation may be pursued if necessary. Against the backdrop of decreasing oil revenues, the state has already taken these risks into account in this year's budget.
Thus, in order to limit imports, import taxes have been increased, and concessions applied in several areas, particularly for cars, have been abolished. At the same time, duties on phones, excise duties on tobacco products, and excise rates applied to rebar and glass products have also been increased. All these steps, in turn, are aimed at reducing the volume of imports.
In other words, the government has already activated its alternative plans, and these measures are an integral part of the economic policy planned for 2026. Furthermore, the role of the population in the budget has been further increased,” X. Karimli noted.
Economic expert Natig Jafarli believes that since the manat exchange rate in Azerbaijan is regulated administratively, it is not possible to analyze or accurately forecast it as a classic economic category:
“This issue is entirely within the purview of the Central Bank and the government, and a decision can be made at any time – this year or two years from now. Precisely for this reason, the manat exchange rate is not an indicator that can be calculated and forecasted using economic models.
Regarding the government's alternative plans, certain steps are being taken towards the development of the non-oil sector, but the share of the non-oil sector in the overall economy is still low. To increase this share, it is crucial to expand production and create sustainable development mechanisms. However, it must be admitted that there is no "magic wand" that allows this to be achieved in a short period.”
Natig Jafarli stated that, in fact, there was a long period when the country obtained significant oil revenues, and it was precisely during those years that these structural reforms were important to implement:
“If that had been the case, today oil revenues would not be the main pillar but merely an additional bonus. As in the example of Norway: this country's budget is not dependent on oil, and changes in world market oil prices do not significantly affect economic stability. Consequently, the problem of economic diversification still remains relevant today,” the economist concluded.
