The processes taking place in the banking and financial sector of the Azerbaijani economy directly affect the daily life of every citizen. The level of inflation and the factors affecting it, the stability of the manat exchange rate, access to loans and loan interest rates, deposits, the stability of the banking sector, and the overall development of financial markets are among the current issues for society. The Central Bank, through its effective monetary policy and prudential regulatory measures, plays a role in maintaining macroeconomic and financial stability, as well as in developing the sustainability of the country's economy.
Taleh Kazimov, Chairman of the Central Bank of the Republic of Azerbaijan, gave an interview to Azerbaijan State Television and APA News Agency.
- AZTV: Currently, the global economy is facing serious challenges: geopolitical tensions continue, the conflict in the Middle East has put pressure on energy markets and supply chains, and volatility in global financial markets is increasing. How do you assess the impact of these realities on the Azerbaijani economy and what are the Central Bank's forecasts regarding the medium-term equilibrium level of oil and gas prices? Taking into account the growing role of the non-oil sector, how do you see the medium-term sustainability of the external sector and the balance of payments?
- Taleh Kazimov - Thank you very much for your question. It was chosen correctly as the first question for the interview. I am sure that one of the main issues that also worries our viewers is the impact of the processes taking place in the Middle East on the Azerbaijani economy.
As a result of the development path it has taken, the Azerbaijani economy has been integrated into the global economy. The most obvious indicator of this is the ratio of trade turnover of goods and services to gross domestic product. This is 80%.
As for the processes taking place in the Middle East, these conflicts have affected oil and gas prices, as well as the prices of energy carriers. These processes have both positive and negative sides.
First of all, I want to talk about the positive. When energy carrier prices increase, Azerbaijan's foreign exchange reserves also increase, and according to the results of the first six months, our foreign exchange reserves have increased to 85.8 billion US dollars. This means an increase of 700 million US dollars in six months. We should also take into account that the State Oil Fund of Azerbaijan transferred 3.77 billion US dollars to the budget in six months.
Our calculations show that, given the current production volumes in our economy, for every $10 increase in price, our economy receives an additional $1.2 billion in revenue. When the average annual price of 1,000 cubic meters of gas increases by $50, this is an additional revenue of approximately $900 million for our country. This figure is almost the same as when the price decreases.
Of course, when prices decrease, the impact is also of the same magnitude, but in the opposite direction.
According to our current forecasts, the average annual price of a barrel of oil this year will be $84.5, and next year it will be $78. The average price of 1,000 cubic meters of natural gas is projected to be $324 and $290, respectively, in 2026 and 2027.
These figures that I have voiced are based on forecasts prepared in May. As you know, at the end of this month we will hold a large press conference dedicated to monetary policy, and at that event we will announce our forecasts for July. The figures I mentioned in the interview today are based on the forecasts for May, and looking at these forecasts, our current account surplus will be 5.5 billion US dollars at the end of this year, and at the end of next year the current account surplus will be around 4 - 4.4 billion US dollars. In other words, the main positive impact of the processes on us is the increase in our current account surplus, which is affected by the increase in strategic currency reserves. Another positive aspect concerns the transport and warehousing sector. This is a great potential for us to use Azerbaijan as a logistics center. The work done by the government in this area is quite satisfactory, and I believe that we will realize this potential.
We import inflation
When it comes to negative impacts, the main issue here is inflation. 80% of the goods and services we import depend on countries that import energy carriers. That is, when energy carrier prices increase, our trading partners, from whom we import goods and services, have their production costs increase. Energy prices rise and when production costs increase, inflation occurs.
- APA: Mr. Kazimov, inflationary pressures have been increasing in our trading partners in recent months, a number of leading countries have revised their forecasts upwards and there are even central banks that have raised the interest rate. Against this background, to what extent is the risk of import inflation assessed and how do these new realities affect the Central Bank's forecasts for 2026-2027? On the other hand, you note that inflation is mainly caused by external supply factors. But how do you see the impact of demand factors, that is, state budget expenditures and lending? In other words, is there a risk of demand-pull inflation in the medium term?
- We do not overestimate the impact of demand factors on inflation. Our calculations show that a 10% increase in budget expenditures, current expenditures and a 10% increase in the credit portfolio, the credit portfolio through the banking sector, have an increasing effect of 0.29% and 0.12%, respectively. This is not a high indicator in our conditions. This gives grounds to say that the overall inflationary impact of demand-pull inflation is low.
But I would like to explain the general situation in very simple language. You know that inflation is formed by demand and supply factors. I also mentioned in the first question that we mainly import inflation and in the last 4 years we have observed that the factor that increases inflation is precisely the supply factor.
When looking at supply factors, there are two main channels here. First, the price of goods and services we import, that is, prices that increase as a result of inflation in trading partners, are imported into Azerbaijan. There is also an increase in the cost factors of producers in the local market. When we talk about cost factors, we have regulated services, for example, prices for electricity, gas, water and other fuels, which are controlled by the state. Their change, as a result of the increase in the cost of goods or services we produce, causes inflation in our country.
When looking at demand factors, the main channel here is the consumption of households and the public sector. If there are two main parameters of consumption, these are mainly budget expenditures and lending. However, as I mentioned earlier, the impact of both on inflation is insignificant. We are mainly affected by supply-side inflation. Our forecasts show that inflation at the end of 2026 will be 5.9%, and at the end of 2027 - 4.5%. Again, the inflation we forecast is within the target range of the Central Bank.
The main anchor of our monetary policy is our fixed exchange rate regime
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