Wednesday, April 1 2020 18:51
Karine Melikyan

CBA Forecast: By the end of 2020, inflation will be 1.9% and will  head for the target threshold in the medium term

CBA Forecast: By the end of 2020, inflation will be 1.9% and will  head for the target threshold in the medium term

ArmInfo.According to the forecasts of the Central Bank of Armenia, inflation by the end of 2020 will amount to 1.9% and will head for the target threshold in  the medium term.  This was noted in the Monetary Policy Program of  the CBA for the I quarter of 2020, published today.  Moreover, the  Central Bank expects that inflation will remain low in the coming  months.

It is expected that the impact of coronavirus will slow down  significantly the growth rate of the global economy, which will  reduce inflationary pressure on the Armenian economy through a  reduction in external demand and lower commodity prices. At the same  time, in the short term, the real sector of the RA economy will  naturally also feel significant negative impacts on itself.

The Central Bank estimates that in the crisis created by the  coronavirus pandemic, the use of monetary instruments as a means of  responding to such circumstances is not effective, since the shock  was already medical in nature. As a result, in the face of  uncertainty, in order to minimize possible damage to the economy, it  is necessary to use a targeted anti-crisis policy using appropriate  targeted tools to promote particularly vulnerable sectors of the  economy and segments of the population.

At the same time, in order to maximize the effectiveness of measures  taken by the government, more than ever, special importance is  attached to ensuring macroeconomic stability, including maintaining  price stability. In this context, guided by the long-term goal of  price stability, and also taking into account the expected dynamics  of inflation and the economy against the background of uncertainty  due to coronavirus, the CBA in March decided to lower the refinancing  rate by 0.25 percentage points (to 5.25% from March 17 this year).

According to Central Bank estimates, from the second quarter of 2020,  the impact on the real sector of the economy will be traced, which  will lead to a reduction in gross demand and supply. Under such a  development trend, the GDP gap will not change much so far, remaining  in a negative background. On the other hand, it is predicted that  stimulating monetary conditions and expected budgetary assistance  will allow starting from the second half of this year to gradually  narrow the GDP gap with the prospect of bringing it to a positive  level over the next year, and this, in turn, will also increase  inflation.

In the medium term, the impact of fiscal policy is expected to be  neutral.  Thanks to the Central Bank's consistent policy, short-term  inflationary expectations of the public have changed insignificantly,  and even against the background of a recent devaluation in the  foreign exchange market, they continue to remain anchor.

Given the expected macroeconomic development and uncertainty, the  Central Bank continues to develop various scenarios of influence, and  in the case the assessed risks come true, it is ready to neutralize  them in order to ensure price stability.

According to the Statistical Committee of the Republic of Armenia,  inflation in the consumer market of Armenia in 2019 was lower - 0.7%  than in 2018 - 1.8%. This was largely triggered by an increase in  prices of non-food products (including alcohol and cigarettes) by  1.4% than in food products by 0.2%, with a rise in tariffs for  services by 1.1%. The average monthly increase in consumer prices in  January-December 2019 amounted to 0.1%, repeating the trend a year  ago. In y-o-y terms (January-December 2019 to January-December 2018),  consumer market also recorded inflation - 1.4% (against inflation  2.5% a year ago), which was due to a rise in prices for food products  by 2.1% (against growth 2.5% a year earlier), non- food - 1.5%  (against growth by 4.5% a year earlier) and increase in tariffs for  services by 0.5% (against increase by 1.2% a year earlier). In  monthly terms, deflation in 2019 was recorded from April to August  inclusive, with June and July (1.9% each) and the relatively high  inflation recorded in January and February (1.7-1.8%). According to  statistics for January-February 2020, January also turned out to be  inflationary (1.3%), while February was deflationary (0.2%, with  y-o-y deflation of 0.5%), in January-February, inflation was 1.4%  (with y-o-y deflation in 0.1%).

It should be noted that according to the early WB forecast in Armenia  in 2020 inflation was expected at 4%. It is noteworthy that the  inflation target in the RA budget is also 4% (+/- 1.5).

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