ArmInfo.The Central Bank of Armenia has once again reduced the refinancing rate by 0.25 percentage points to 5%. As the Central Bank of Armenia press service told ArmInfo, this decision was made at the April meeting of the Central Bank Board.
In accordance with this, rates on lombard repo were reduced by 0.25 percentage points from 6.75% to 6.5%, and on deposits from banks - from 3.75% to 3.5%.
The CB Board states that the spread of coronavirus and preventive measures in the field of healthcare have a significant negative impact on the growth of the world economy, including the partner countries of Armenia, and have increased the volatility of raw materials and food prices. Despite the fact that due to the joint efforts of the central banks of leading countries, the volatility of financial markets has weakened, uncertainty and risks remain at a high level. According to the Central Bank, all this will have a deflationary effect on the Armenian economy.
As a result of the negative impact of coronavirus on the economy of Armenia, in March 2020 compared with the same period last year, in almost all fields of the economy, there was a decrease in economic activity, which, according to the Central Bank, will accelerate in the second quarter due to a decrease in both demand and supply . It is estimated that weak gross demand will continue in the future, to some extent mitigated by the stimulating effect of measures taken by the government aimed at eliminating social and economic consequences. At the same time, the uncertainties associated with the timing of overcoming the crisis and economic recovery have increased to a certain extent, only after reducing which it will be possible to assess longer-term changes in the structure and prospects of the Armenian economy.
The Central Bank Board, given the current and projected development of the domestic and global economies, weakening demand, the existing low inflation environment and stabilization of financial markets, considers it expedient to strengthen the stimulating effect of monetary conditions by another decrease in the refinancing rate by another 0.25 percentage points. The Central Bank Board believes that in this situation this stimulating effect should be maintained in the medium term.
As a result, according to the basic scenario of the Central Bank, inflation will remain low in the short term and will approach the target threshold (4% +/- 1.5 - Ed. note) only at the end of the forecast period. As of March 2020, inflation in the consumer market of Armenia was recorded at 0.5% (against inflation 0.1% in March last year), with annual deflation at 0.1%.
Currently, the uncertainty regarding the short-term and long-term prospects of economic development is quite high, which the Central Bank is also trying to take into account in its actions. At the same time, according to the Central Bank, the risks of inflation deviation from the predicted trajectory are more downward, which is due to both external and internal factors. In case of any manifestation of risks, the Central Bank is ready, if necessary, to adjust the policy accordingly to ensure price stability in the medium term.
It should be noted that the previous decrease in the refinancing rate by the Central Bank of Armenia dated March 17, 2020 - from 5.5% to 5.205%, and at the same time, rates on pawnshop repo were reduced from 7% to 6.75%, and deposits from banks - from 4% to 3.75%. Another decrease in the refinancing rate again by 0.25 percentage points followed in late April.