Between January and November 2025, Azerbaijan navigated domestic and global economic pressures with stable inflation, robust banking profits, and expanding Chinese investments, while SOCAR’s upgraded credit rating signaled rising investor confidence amid improving fiscal buffers and easing regional tensions. For January–November of 2025, the Central Bank of Azerbaijan stated that inflation dynamics and financial sector performance were shaped by a combination of external and domestic factors over the reporting period.

The Central Bank emphasized that inflation during the year was significantly influenced by foreign cost pressures, noting that price growth in Azerbaijan’s trading partner countries contributed an estimated 2.87 percentage points to domestic inflation in the previous month. It stated that movements in the nominal effective exchange rate of the national currency further increased inflation by 0.38 percentage points, while domestic supply factors, including agricultural producer prices, and demand-side factors such as household and government consumption, also exerted upward pressure.

According to the Central Bank, annual inflation is expected to stand at around 6 percent in 2025 and approximately 5.7 percent in 2026. The regulator stated that the key interest rate has reached its lowest level in four years and is close to the neutral rate, reflecting an overall easing of monetary policy during the year. The Central Bank stated that monetary policy decisions in 2025 were taken with regard to macroeconomic forecasts, changes in inflation risks, developments in the foreign exchange market, and expectations of interest rate reductions abroad.

It emphasized that the parameters of the interest rate corridor were discussed eight times in line with a pre-approved schedule, with the key rate maintained at six board meetings and lowered at two, resulting in a reduction of the key rate from 7.25 percent to 6.75 percent, the upper corridor limit from 8.25 percent to 7.75 percent, and the lower limit from 6.25 percent to 5.75 percent. As of December 1, the Central Bank stated that 7-day deposits accounted for 87 percent of the sterilization portfolio used in open market operations.

It noted that since April, the Ministry of Finance has placed balances of the single treasury account as deposits with commercial banks, increasing liquidity in the banking sector; under these conditions, 7-day deposit operations were used as the main tool to keep the AZIR rate close to the policy rate. The Central Bank emphasized that work to improve the operational framework of monetary policy continued, including changes to standing deposit and reverse repo operations from one day to overnight terms, the elimination of minimum participant requirements in note auctions, and the replacement of 7-day repo operations with 7-day deposits.

It stated that, following analysis of interbank market practices and international experience, updated rules for calculating the AZIR index were approved in May 2025 in cooperation with experts from the European Bank for Reconstruction and Development, ensuring its consistent use as a reference rate. The Central Bank stated that between 2008 and the end of the third quarter of 2025, approved non-sovereign operations by international financial institutions in Azerbaijan totaled $2.671 billion, with major contributions from the EBRD, ADB, and the Black Sea Trade and Development Bank.

It emphasized that the financial sector, industry, and renewable energy were the main recipients, while average annual funding volumes increased significantly over time. In January–November of 2025, the Central Bank stated that Azerbaijan’s banking sector generated a net profit of about 1.06 billion manats, reflecting a year-on-year increase of 9.6 percent. It emphasized that operating income exceeded 6.22 billion manats, while operating expenses rose to nearly 4.52 billion manats, with allocations to special reserves and profit tax payments also increasing.

As of December 1, the Central Bank stated that total banking sector assets reached 58.75 billion manats, marking a 17.1 percent annual increase, while net loans amounted to 27.92 billion manats. It emphasized that deposits totaled 37.2 billion manats, with household deposits growing notably faster than corporate deposits, and stated that total sector capital increased by 11.2 percent year-on-year to 7.23 billion manats.

According to the Eurasian Development Bank, China’s accumulated foreign direct investment in Azerbaijan reached $405 million by the end of the first half of 2025, compared to $259 million at the beginning of 2017. The bank stated that the average annual growth of Chinese investment amounted to 4.8 percent in 2016 and nearly 9.7 percent since 2022, with manufacturing accounting for 88 percent of the investment portfolio, while energy projects represented 12.3 percent.

The EDB stated that Chinese companies are implementing several large-scale projects, including the construction of 100 MW solar power plants in the Gobustan region and near Lake Boyukshor, as well as industrial initiatives such as an electric bus assembly plant in Sumgait and an elevator and escalator manufacturing facility in the Agdam Industrial Park. It emphasized that these projects are financed primarily by investors’ own funds and align with Azerbaijan’s strategy to expand renewable energy and green electricity exports.

According to the EDB, China’s accumulated FDI in South Caucasus countries has increased 2.5-fold over the past decade to $690 million, with Azerbaijan accounting for around 60 percent of the portfolio. It stated that priority sectors include manufacturing and energy, and that in the first half of 2025, China launched 25 new projects with total accumulated investment of $873 million, increasing the overall number of projects to 213.

Standard & Poor’s stated that it has revised the rating outlook for the State Oil Company of Azerbaijan (SOCAR) from stable to positive while affirming the company’s long-term credit rating at "BB." During the update, the international ratings agency emphasized that the positive outlook reflects the possibility of an upgrade should Azerbaijan’s creditworthiness improve further and SOCAR’s credit metrics and financial policy remain consistent with a "bb-" stand-alone credit profile (SACP).

It stated that "the positive outlook on SOCAR reflects the possibility that we could upgrade the company if Azerbaijan's creditworthiness improved and SOCAR's credit metrics and financial policy remained commensurate with a ‘bb-’ stand-alone credit profile." S&P noted that on November 12, 2025, it upgraded SOCAR’s long-term rating to "BB" from "BB-" after revising the company’s SACP to "bb-" from "b."

The agency stated that this decision followed a material improvement in SOCAR’s financial policy transparency and disclosure standards, which improved clarity regarding the company’s performance. The agency emphasized that SOCAR is fully owned and controlled by the government of Azerbaijan and stated that it sees a very high likelihood of extraordinary state support if the company were to encounter financial difficulties.

According to S&P, improvements in Azerbaijan’s sovereign credit quality, particularly its financial capacity to support state-owned enterprises such as SOCAR, have strengthened the company’s own credit profile. S&P stated that the positive outlook on SOCAR follows a similar action on Azerbaijan’s sovereign rating and reflects several contributing factors.

It emphasized that tensions between Azerbaijan and Armenia have eased significantly due to progress toward peace and reductions in defense spending outlined in the 2026 budgets of both countries, reducing the risk of renewed conflict and supporting investor confidence. The agency stated that Azerbaijan maintains exceptionally strong fiscal and external buffers supported by substantial assets managed by the State Oil Fund of the Republic of Azerbaijan (SOFAZ).

It emphasized that the country’s sustained net government asset position and low public debt provide significant shock-absorption capacity and help mitigate volatility in hydrocarbon prices, supporting overall macroeconomic stability. S&P emphasized that Azerbaijan’s credit fundamentals are expected to improve over the medium term if geopolitical risks continue to recede and fiscal buffers are preserved.

It stated that while a formal peace treaty has not yet been finalized, recent commitments and early implementation steps mark the most constructive phase in bilateral relations in decades and could improve the investment environment and raise growth potential. The agency stated that potential rating upside for SOCAR over the next 12 months depends on two main factors: continued improvement in Azerbaijan’s creditworthiness, signaling greater capacity for state support if needed, and SOCAR maintaining its SACP at no lower than "bb-," with financial policy and credit metrics remaining aligned with established thresholds.