Center for Strategic Studies of Eurasia

    Policy briefs · Sep 27, 2026

    One energy shock, five central banks, three directions

    In three weeks of September, Kazakhstan cut, Armenia hiked, and Georgia, Uzbekistan and Azerbaijan held. The same oil-price shock is being read very differently across the region.

    Connectivity & TradeCentral AsiaSouth Caucasus
    Captivating sunrise over snow-capped mountains in Almaty, showcasing nature's beauty.
    Alexander Buzurnyuk / Pexels
    Contents

    Key takeaways

    • The National Bank of Kazakhstan cut its base rate by 50 basis points to 16.25 per cent on 4 September, its third consecutive cut, after inflation fell to 9.8 per cent in August.
    • The Central Bank of Armenia raised its policy rate by 25 basis points to 6.75 per cent on 15 September, its first increase since December 2022, with the board split four to four.
    • The Central Bank of Azerbaijan held its refinancing rate at 6.5 per cent on 23 September but lowered the corridor floor from 5.5 to 5.0 per cent, citing a banking-sector liquidity surplus reported at AZN 6.3 billion.
    • The EBRD’s 24 September outlook puts growth at 5.8 per cent in Central Asia and 2.5 per cent in Eastern Europe and the Caucasus in 2026, and says energy accounts for about a quarter of headline inflation across its regions.

    Between 4 and 23 September five central banks in the South Caucasus and Central Asia set policy rates. Kazakhstan cut. Armenia raised. Georgia, Uzbekistan and Azerbaijan held, though Azerbaijan loosened at the edges. All five cited the same external pressure: energy and food prices pushed up by conflict in the Middle East. That they reached three different answers is the more useful finding. Inflation outside Kazakhstan sits in a band of roughly 4.5 to 6 per cent. The split comes from what each economy’s demand is doing and from whether a higher oil price reaches it as a cost or as an inflow of dollars.

    What the five decided

    • Kazakhstan, 4 September: base rate cut by 50 basis points to 16.25 per cent, the third cut in a row. Annual inflation 9.8 per cent in August.
    • Georgia, 9 September: monetary policy rate held at 8.25 per cent. Inflation 5.6 per cent in August, core 3.6 per cent, against a 3 per cent target.
    • Armenia, 15 September: policy rate raised by 25 basis points to 6.75 per cent. Inflation 4.4 per cent, core 4.8 per cent, against a 3 per cent target.
    • Uzbekistan, 16 September: policy rate held at 14 per cent. Inflation 6.2 per cent in August, core 5.5 per cent.
    • Azerbaijan, 23 September: refinancing rate held at 6.5 per cent, corridor floor cut from 5.5 to 5.0 per cent, ceiling kept at 7.5 per cent. Inflation 5.7 per cent, core 5.1 per cent, inside a 4 per cent ±2 target band.

    A simple subtraction of August headline inflation from the policy rate gives a rough, backward-looking measure of how tight each bank is. On that basis Uzbekistan is tightest at about 7.8 percentage points, a figure ING also cites, followed by Kazakhstan at about 6.5. Georgia and Armenia are near 2.5. Azerbaijan is below one point. The measure ignores expectations and forecasts, which are what central banks actually target, but it shows how far apart the starting positions are.

    Armenia moved against the market’s expectation

    The Armenian decision is the one that changes the regional picture. On 3 September ING expected both Armenia and Azerbaijan to stay on hold. Twelve days later the Central Bank of Armenia raised its rate for the first time in more than three years, after cutting it from 10.75 per cent from mid-2023 onwards. Governor Martin Galstyan said growth had accelerated in the second quarter to above its long-term sustainable level, and that construction and services were pointing to excess demand.

    This was a close call. Galstyan told reporters that the board’s votes were “split 4-4”, with four members for holding and four, including himself, for raising. He also set a high bar for reversing it: rates would come down only if growth slowed markedly and output fell below potential. Armenia’s inflation, at 4.4 per cent, is the lowest of the five. The bank is not reacting to the level. It is reacting to demand, particularly in services, where it says prices have begun to accelerate again. That is a domestic problem, and the Middle East shock only adds to it.

    Georgia and Uzbekistan wait for the shock to pass

    Georgia’s National Bank describes its problem the other way round. It attributes the gap between 5.6 per cent inflation and its 3 per cent target mainly to supply shocks from energy and international food markets. Core inflation, at 3.6 per cent, is close to target. Growth remains strong, 8 per cent in July, yet the bank says productivity gains are containing demand pressure. It expects inflation to average 5.2 per cent this year and says it will raise rates moderately only if expectations start to drift. The next decision is due on 21 October.

    Uzbekistan is the most restrictive of the five in real terms and the closest to easing. The Central Bank held at 14 per cent, citing sustained domestic demand and the risk that the liberalisation of regulated tariffs feeds into other prices. ING read the statement as dovish and expects a cut in the fourth quarter. The case against hurrying is the economy itself: the EBRD records growth of 8.5 per cent in the first half and has raised its 2026 forecast to 7.5 per cent.

    For the exporters, the shock arrives as dollars

    Azerbaijan shows how the same oil price looks from the other side. The Central Bank kept its policy rate but widened the corridor downwards, which lets overnight money-market rates fall further without a formal cut. According to AzerNews’ analysis of central-bank data, the structural liquidity surplus in banks reached AZN 6.3 billion at the end of August, 2.2 times the level at the end of 2025, and reserves rose 32.9 per cent in January–August to $15.3 billion. The same analysis puts the foreign trade surplus for those eight months at $10.4 billion. Foreign currency is arriving faster than the economy absorbs it, and the bank is letting money-market rates drift lower rather than defend them. Inflation remains inside the target band, near its top, which is why the headline rate did not move.

    Kazakhstan is also an exporter, and its tenge has strengthened, which the National Bank says has helped lower import costs. But its cut deserves more scrutiny than the others. Inflation is still almost double the 5 per cent target. The bank revised its 2027 inflation forecast up, to 6.5–8.5 per cent, and flagged a stronger fiscal impulse than in the government’s previous forecast as a risk. Cutting while raising the next year’s inflation forecast is a judgement that the high real rate leaves room. It also means monetary policy is easing at the moment fiscal policy is loosening. That combination is where the tenge’s support from portfolio inflows, which ING puts at $5.4 billion of non-resident government bond holdings in July, would be tested if oil prices fell.

    What the EBRD adds, and what it does not

    The EBRD’s September Regional Economic Prospects, published on 24 September, gives the backdrop. It forecasts 5.8 per cent growth in Central Asia this year and 5.3 per cent next, and 2.5 per cent for Eastern Europe and the Caucasus in 2026. It says average inflation across its regions has settled around 6 per cent, that energy accounts for roughly a quarter of headline inflation, and that financing conditions have tightened. For Kazakhstan it expects 4.7 per cent growth this year after 4.1 per cent in the first half; for Azerbaijan, 2.0 per cent, with the outlook still tied to hydrocarbon prices and volumes.

    The EBRD figures support the central banks’ reading of their own economies: fast growth in Uzbekistan, the Kyrgyz Republic and Tajikistan, slower growth in the exporters. They do not settle the Armenian question, which is whether above-potential growth is a lasting demand problem or a temporary surge in services that will fade by itself. The CBA’s split board suggests its own staff are not sure either.

    What to watch

    Three dates carry most of the information. Georgia decides on 21 October; a move there would signal that the bank no longer treats the energy shock as temporary. Azerbaijan decides on 29 October, when the question is whether the corridor change is followed by a cut in the rate itself. Uzbekistan’s next meeting will test ING’s fourth-quarter call. Beyond the dates, the series that matters most is Armenian services inflation: if it keeps rising, the September hike was the first of several, and the region will have a genuine tightening outlier. In Kazakhstan, the 2027 budget will show whether the fiscal impulse the National Bank warned about is as large as it fears.

    Sources

    Related publications

    Policy briefs · Caspian

    Kazakhstan starts dredging Aktau as falling Caspian levels cap its only westward alternative

    Kazakhstan's Ministry of Transport said on 5 October that main dredging works had begun at the port of Aktau, removing about 1.3 million cubic metres of material to take the harbour basin to a depth of 6–7 metres. The ministry expects up to 30 per cent more cargo on the Trans-Caspian route and maritime freight costs 10–15 per cent lower, with completion by the end of 2026.