Thursday, January 22 2015 13:47
Central Bank of Armenia increases refinancing rate from 8.5% to 9.5%
ArmInfo. Central Bank of Armenia increased the refinancing rate from 8.5% to 9.5% on January 22, Central Bank of Armenia (CBA) press office told ArmInfo. According to the source, the CBA adopted the given decision to maintain its monetary policy. In December, inflation totaled 3%, which resulted in 4.6% inflation for 2014. Deflation trends are still observed in the foreign sector, in the markets of foods and raw materials. So far, it is uncertain how quickly those trends will affect the prices in the Armenian market. Deflation pressures are observed also in the partner-countries, except Russia, where the unprecedented depreciation of the national currency, ruble, in December 2014, sparked price hikes.
On the other hand, there are still inflation expectations in the domestic market, though they were certainly softened in late 2014, and this affects the financial market, boosting demand of economic entities for higher rates of instruments in terms of the national dram. The Central Bank's Board says high interest rates that resulted from the changes in the rates of the Lombard repos of the Central Bank are to some extent connected with the international rates and tendency of the long-term growth of the country risk premiums in developing countries. At the same time, the CB Board decided to reduce high market rates through reduction of the interests on Lombard repos by 3pp to 17% (interest rate on deposits is 8%). This will help neutralize inflation expectations and ensure the inflation target amid weakening pressures on the currency market.
Over the last months of 2014, the exchange rate has outstripped the record-breaking 570 drams per 1 dollar. To restrain appetite of currency speculators, the Central Bank launched daily intervention in the currency inter-bank market on December 8. The given policy of the Central Bank aimed to restore the balance in the currency market, soften currency fluctuations and normalize the situation in the currency market of Armenia.
Since the launch of its daily interventions - from Dec 8 through Dec 27 - the CB sold on the interbank forex market a total of $54.7mln. Earlier, on 17 December, the Central Bank toughened the compulsory reservation standards for the raised funds in foreign exchange from 12% to 24%. Banks place their "reserve funds" with the CB in terms of the AMD only. Earlier on December 3, the CB increased the Lombard repo rate from 10.25% to 21%. Finally on 23 December, the CB increased the refinancing rate from 6.75% to 8.5%. Since early December, the CB launched long-term foreign exchange swaps in the market (for a period of 3-6 months) to satisfy demand for US dollars.
From Oct through Dec 17, 2014, AMD dropped against USD by 45%, Dec 18-20 it grew by 25%. On Dec 22 it started dropping again. For comparison it should be noted that on Dec 20 the rates were 455 AMD, 555 AMD and 7.8 AMD, respectively, versus 570 AMD, 712 AMD and 8.6 AMD, respectively, on Dec 17. At NASDAQ OMX Armenia, foreign exchange operations amounted to $744.5 million drams in 2014 with the exchange rate growing from 407.14 to 560 AMD/1 USD (on Dec 17), then dropping to 470 AMD/1USD on Dec 27. As of January 22 2015, the average exchange rates on the retail market of Armenia are as follows: 472AMD/1USD, 547AMD/1EUR, and 7.3AMD/1RUR.
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