Tuesday, June 16 2020 17:21

ArmInfo. For the third time this year, the Central Bank of Armenia has reduced the refinancing rate - this time by 0.5 percentage points to 4.5%. According to the press service of CB RA, ArmInfo was informed that this decision was made on  June 16 at a meeting of the Central Bank Council. In accordance with  this by 0.5 percentage points Lombard repo rates were reduced from  6.5% to 6%, and on deposits attracted from banks - from 3.5% to 3%.

An RA CB report said: "In connection with the coronavirus pandemic,  the world economy is expected to record one of the most significant  recessions in the second quarter. Judging by the estimates, the  global economy is recovering at a slower rate than expected and the  uncertainty over the duration of the pandemic remains. At the same  time "Commodity prices have shown some signs of stabilization and  recovery due to cautious optimistic expectations for the Chinese  economy. The external sector is projected to continue to exert a  deflationary effect on the Armenian economy."

According to CB estimates, in the second quarter the decline in  economic activity in Armenia will deepen under the factors of both  supply and demand. The decrease in supply is due, in particular, to  the decline in the construction sector and the service sector, and  the decline in demand is mainly caused by a reduction in private  spending, both in terms of consumption and investment. Despite the  stimulating effect of fiscal policy this year, the impact of  declining private demand will prevail, largely due to the continuing  uncertainty of the coronavirus situation.

The CB Council, given the slowdown in the recovery of external and  domestic demand, the existing low- inflation environment and the  negative impact arising from uncertainty, considered it expedient to  lower the refinancing rate more significantly. According to CB  Council estimates, in the current situation it is necessary to  maintain the stimulating effect of monetary conditions in the medium  term, which will keep inflation at a low level in the short term,  approaching the target threshold only at the end of the forecast  period. The CB Council believes that in the current situation, in  order to restore gross demand, along with strengthening the  stimulating effect of monetary conditions, the key is to implement  the most stimulating fiscal policy.

The CB Council states that the risks of deviation of inflation from  the planned vector still prevail downward, due to a possible slowdown  in demand recovery and the likelihood of the uncertainty of the  coronavirus situation remaining. According to the data for May 2020,  the consumer market of Armenia recorded a deflation of 0.1% (against  deflationary 0.4% in May 2019), with annual inflation of 1.2%.  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 two drops by the Central Bank of  the Republic of Armenia refinancing rates and both times by 0.25  percentage points dated March 17 and April 28, 2020 - in total from  5.5% to 5%, in accordance with which the rates on  pawnshops repo  were reduced - from 7% to 6.5%, and on deposits attracted from banks  - from 4% up to 3.5%.