Azerbaijan will continue to keep the manat’s exchange rate stable at 1.7 against the US dollar, APA-Economics reports, citing S&P Global Ratings' updated economic forecasts for Azerbaijan.
It is noted that the Central Bank’s regular currency interventions and strong reserve position support this process. As of October 31, 2025, the Central Bank’s foreign exchange reserves rose to USD 11.4 billion (equivalent to roughly four months of current external payments), creating a significant buffer against projected oil prices. However, due to the economy’s high dependence on hydrocarbon revenues, a managed adjustment of the exchange rate cannot be ruled out in the event of prolonged low oil prices.
The current exchange rate regime stabilizes inflation but limits the Central Bank’s monetary policy flexibility: “Deposit dollarization, which stood at 55% before the pandemic, has now dropped to 29%, explained by higher interest rates on manat deposits and exchange rate stability. Nevertheless, dollarization remains sensitive to confidence, and in the event of currency pressure, a rapid shift by the population to foreign currency is possible.”
The agency added that Azerbaijan is implementing a series of reforms aimed at strengthening prudential regulation and banking supervision under the 2024–2026 Financial Sector Development Strategy.
Regulatory bodies are gradually adopting Basel III standards, piloting a risk-based supervision model, and introducing initiatives to strengthen governance, disclosure, and macroprudential oversight. These reforms are still at an early stage, but once fully implemented, they will help align the country’s banking regulation with international practice.
Meanwhile, the banking sector maintains a stable funding profile supported by an expanding deposit base. Although deposit dollarization is approaching regional averages, it remains significantly higher than loan dollarization, creating a structural mismatch on bank balance sheets between foreign-currency-denominated liabilities and predominantly manat-denominated assets.
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