Tuesday, July 28 2020 20:29

ArmInfo.In Armenia, by the end of 2020, inflation will be in the range of 1.7-2% - near the lower border of the permissible range. A similar forecast on July 28  at a press conference timed to the meeting of the Council of the  Central Bank of Armenia regarding the refinancing rate (left at the  same level of 4.5% - Ed.), Was announced by the Chairman of the  Central Bank of Armenia Martyn Galstyan.

"We still continue to pursue a policy of low inflation, which is  fully justified based on the interests of the citizens of Armenia.  Otherwise, we would have faced a 20-25% increase in food prices. And  the result of our consistent actions is also the fact that we can  safely reduce the refinancing rate without any attendant  consequences, "said the head of the Central Bank. In addition, in  this regard, he pointed to the high level of public confidence, which  was formed thanks to the policy. "I consider it an achievement that  the overwhelming majority of citizens are of the opinion about low  inflation in the Republic of Armenia," he noted.

The head of the Central Bank noted that the decrease in the  refinancing rate from March to June contributed to the fact that  Armenia did not face an increase in credit rates. In this regard, M.  Galstyan said that the volume of lending in the republic is growing,  but in the conditions of the existing uncertainty in the economy,  there is no perfection in the work of transitional mechanisms.  However, according to him, this is typical of all countries of the  world: "the risks accumulated in the real sector of the economy force  banks to exercise caution in their credit policy."

Returning to the decision of the Central Bank Council on the  refinancing rate, which has been kept at the same level, Martyn  Galstyan noted: "In the second quarter, a significant weakening of  the world economy and external demand was recorded in the external  sector, which was consonant with the projected developments under the  monetary policy program. At the end of the quarter, prices in the  main commodity markets formed slightly higher than expected. At the  same time, both developed and developing countries have continued to  implement stimulating monetary and substantially stimulating fiscal  policies. As expected, there will be no significant inflationary  impact on the Armenian economy from the external sector.

The head of the Central Bank noted that in the second quarter of this  year, the decline in economic activity and domestic demand in Armenia  was within the framework of the forecasts of the Central Bank. He  explained that the decline in volumes was mainly manifested in the  construction and services sectors, while the decline in the  industrial sector was slower than expected. Due to the great  uncertainty about the timing of overcoming the coronavirus pandemic,  it is estimated that in the near future, domestic demand will remain  weak, although remittances, which have decreased much less than  expected, will have a certain positive effect. At the same time,  according to the Central Bank's estimates, the current fiscal policy,  in particular, the latest legislative changes in terms of income tax,  will have a positive impact on both supply and demand.

Given that the actual development has come close to the forecasts of  the monetary policy program for the second quarter, the Central Bank  Board considers that the current monetary conditions are quite  stimulating. At the same time, it is estimated that in the current  situation it is necessary to maintain the stimulating effect in the  medium term as well - this will gradually increase inflation and  stabilize it at the end of the forecast horizon near the target  threshold. Martyn Galstyan noted that in the current situation,  fiscal stimulating policy is also key for the restoration of gross  demand, especially through expenditures that contribute to the growth  of the economy's potential.

"According to our estimates, the risks of inflation deviating from  the planned rate are mostly directed towards the downside, which is  due to a possible slowdown in demand recovery and the likely  persistence of uncertainty. In the event of such risks, the Central  Bank is ready to respond appropriately in order to ensure price  stability in the medium term,> he concluded.  It should be reminded  that the previous three reductions of the refinancing rate by the  Central Bank of Armenia, and twice by 0.25 percentage points. and the  third by 0.5 p.p., dated March 17, April 28 and June 16, 2020 - from  a total of 5.5% to 4.5%, in accordance with which the rates on  lombard repo were reduced - from 7% up to 6%, and on deposits  attracted from banks - from 4% to 3%.  According to the Statistical  Committee of the Republic of Armenia, in the consumer market of  Armenia in the first half of 2019, inflation was recorded at 1%,  against 0.1% inflation in the same period of 2019. On an annualized  basis (compared to the first half of 2019), the consumer market  recorded inflation of 0.5% (against inflation of 2% a year ago). In  June 2020, against June 2019, consumer prices increased by 1.7%  (against an increase of 2.5% a year earlier).