Armenian Central Bank: The duration of the acceleration of domestic demand growth is due to the increase in private consumption and private investment

ArmInfo. The Council of the  Central Bank of Armenia recorded a continuation of the trend of  accelerating the growth of domestic demand, which was manifested by a  significant excess of the projected indicators of private consumption  and private investment. The Central Bank stated that the growth of  domestic demand was facilitated by an expanded monetary policy and a  relatively high growth in bank lending to the economy (in February,  17.6% per annum). As the press service of the Central Bank told  ArmInfo on April 9, the Council of the Central Bank made such  conclusion at the last March meeting.

At the same meeting, the consonance of the development of the  external sector was also presented to the forecasts of the Central  Bank of Armenia, namely, the stabilization of the growth of the world  economy continued. In particular, in the Eurozone, growth slightly  exceeded the projected rate, reaching 2.7%, while in the US and  Russia, the growth of the economies to some extent gave way to the  forecasts, amounting to 2.5% and 1.5%, respectively. In the  international markets of basic commodities, inflationary tendencies  were kept, consistent with the forecasts of the Central Bank of  Armenia, and a restrained rise in price of dairy products and grains  was observed in the international food markets in conditions of price  reduction.  Based on macroeconomic development and inflation trends,  the Fed and the Central Bank of Europe continued to raise the key  rate, while the CBR retained a policy of easing monetary conditions.  According to the Central Bank of Armenia, in the coming months,  inflationary tendencies will remain on the international food markets  and under these conditions a weak inflationary influence from the  external sector is expected.

At the same meeting, the consonance of the development of the  external sector was also presented to the forecasts of the Central  Bank of Armenia, namely, the stabilization of the growth of the world  economy continued. In particular, in the Eurozone, growth slightly  exceeded the projected rate, reaching 2.7%, while in the US and  Russia, the growth of the economies to some extent gave way to the  forecasts, amounting to 2.5% and 1.5%, respectively. In the  international markets of basic commodities, inflationary tendencies  were kept, consistent with the forecasts of the Central Bank of  Armenia, and a restrained rise in price of dairy products and grains  was observed in the international food markets in conditions of price  reduction.  Based on macroeconomic development and inflation trends,  the Fed and the Central Bank of Europe continued to raise the key  rate, while the CBR retained a policy of easing monetary conditions.  According to the Central Bank of Armenia, in the coming months,  inflationary tendencies will remain on the international food markets  and under these conditions a weak inflationary influence from the  external sector is expected.

The development of the financial sector was characterized by the  Central Bank as follows: in February- March, short-term interest  rates basically stabilized near the refinancing rate. This was  partially facilitated by the use by the regulator of instruments of  absorbing excess liquidity.

The CB Board believes that, within the framework of the forecasted  development, it will be necessary in the future to phase out the  stimulating impact of monetary conditions in stages. But, proceeding  from the expected insignificant inflationary influence from the  external sector and the economy of Armenia and taking into account  the considerable mitigation of the additional inflationary  expectations accumulated at the end of last year, the CB Board still  prefers to maintain the refinancing rate at the same level of 6%. As  for the possible tightening of monetary conditions, the Central  Bank's Board will correct them in the monetary policy program of the  next quarter.  The Central Bank retained the refinancing rate at the  previous level of 6% at a meeting of the Council on March 27. Along  with this, at the same level, the rate for lombard repo was set at  7.5%, and deposits attracted from banks - 4.5%. In 2017, after the  February fall from 6.25% to 6%, at the subsequent meetings (in March,  May, June, August, September, November and December), the Central  Bank left the refinancing rate unchanged, also in February-March  2018. Inflation in February 2018 was 0.5%, and in comparison with  February 2017 - 3.3%. Economic activity in Armenia in  January-February 2018 compared with the same period in 2017 increased  by 8.6%. The GDP growth in Armenia in 2017 was 7.5%.