Azerbaijan: CBAR extends pause in rate hikes with a sharper focus on macro-prudential measures

The Central Bank of the Republic of Azerbaijan (CBAR) today again kept the refinancing rate at 7.75%, in line with our expectations. At the same time, the tone of commentary by the Azerbaijani Central Bank remained neutral. The decision was based on the following arguments: 1) inflation is expected to decelerate by year end under current monetary conditions; 2) the current account surplus is projected to grow, which will help maintain a balance on the FX market; 3) the economy is recovering without excessive inflationary pressure, and 4) tools are being fine-tuned to limit growth of the monetary base. Given today\'s decision, as well as the absence of strong signals from the Central Bank, we still believe that the issue of raising the rate is temporarily off the agenda. However, in the absence of a disinflationary trend predicted by the CBAR in the second half of the year and/or an increase of external inflationary pressure, the Azerbaijani Central Bank may return to considering the issue of a rate hike rate.