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%.
