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).