Tuesday, May 14 2013 20:56
Central Bank: Refinancing rate retained at 8% but interest rates may be changed in case of inflation risks
ArmInfo. The Central Bank of Armenia (CBA) has retained the refinancing rate at 8%. The CBA press service told ArmInfo that the CBA Council took the relevant decision on May 14. The source reports that April 2013 saw 0.1% deflation, which resulted in 3.9% annual inflation (the target inflation was 4% 1.5). The CBA expects annual inflation to grow to the top of the admissible range by late Q2 2013 and then to almost meet the target within the forecast period.
The CBA Council states that the global demand remains at a low level and the international markets of raw materials and food experienced deflation in early Q2.
The CBA expects agriculture product prices to rise in the short-term outlook because last year's agriculture supply shock has subsided. This will neutralize the deflationary pressure expected from external sources. In Q1 2013 the economic activity in Armenia was high mostly due to the high growth in the industrial sector and services (specifically in the trade sector). In the current quarter private consumption has risen much. The CBA Council points out that it was possible to dampen the impact of private consumption on the domestic prices in Q1 2013 mostly thanks to a more restrained fiscal policy of the Armenian Government than envisaged in the basic scenario of the monetary policy for Q1.
Given the abovementioned tendencies, the CBA Council thinks it reasonable to adhere to the neutral monetary policy. Within the forecast period annual inflation will remain near 4% under these conditions.
Nevertheless, the Council thinks that there may arise inflation risks in the short-term outlook due to the current bad weather conditions and their impact on agriculture and possible revision of prices of energy resources. In case of such risks, the CBA Council may further change the interest rates.
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