Central Bank of Armenia: Maintaining uncertainty restrains rapid  economic recovery

ArmInfo. In Armenia, some uncertainty is observed in terms of inflationary expectations, this is especially noticeable on the part of households. Another  uncertainty is the tension on the state border.

There is also a serious uncertainty about the timing of final overcoming the  coronacrisis, it is not yet clear how long the inflationary impact  will last, in particular on commodity markets, and how quickly the  world economy and the domestic economy of Armenia will recover. These  factors restraining the rapid economic recovery were mentioned by the  Chairman of the Central Bank of the Republic of Armenia Martin  Galstyan on August 3 during a press conference, timed to the next  increase in the refinancing rate by 0.5 percentage points - up to 7%.

At the same time, he noted: "Just like our external partners, we  believe that the post-election processes, in other words, a certain  stability, had a positive effect on the Armenian economy. But the  above uncertainties still persist and their impact restrains the  rapid economic recovery.

When asked by ArmInfo regarding the impact of the increase in the  refinancing rate on prices, M. Galstyan explained that this has a  certain effect on prices in the context of one lag, the time period  of which exceeds a six-month period. "That is, today's actions of the  Central Bank (raising the refinancing rate) are aimed, firstly, at  some containment of inflationary expectations, and secondly, we will  see the impact of these steps after two or three quarters. As you  remember, already in December 2020, when inflation was 1.4% , the  Central Bank began to raise the refinancing rate, then already  estimating that in 2021 inflation will exceed the target threshold  (4%), i.e. the increase in the refinancing rate at that time was  aimed at curbing the upward inflationary expectations assumed in  2021.

To another question from ArmInfo about a possible change in the  forecast growth of remittances, M.  Galstyan replied: "The Central  Bank does not exclude an increase in the forecast range of growth in  net inflow of remittances with the next update of forecasts for 2021  (from the currently projected 15-18%). The high growth in the net  inflow of transfers from the USA will continue this year, in parallel  with which the growth in the inflow of remittances from Russia will  recover, the trends of which are already visible at the end of the  first half of this year. And already from 2022, the growth rate of  the inflow of remittances from the United States will begin to slow  down from high to moderate.

Regarding the duration of the state assistance programs, M. Galstyan,  stressing their beneficial effect on the economy, at the same time  suggested that if they continue, the volume will no longer be as  significant as in the covid period, i.e. instead of the previous 160  billion drams, a smaller volume will be used, and naturally the  impact from this will be weaker.  Answering ArmInfo's question about  the likelihood of extending the regulatory "concession" for freezing  a part of the portfolio of non-performing loans for another year, M.  Galstyan said: "We see that there is a sharp slowdown in growth for  certain types of loans. But, having applied this indulgence since  December 2020, the Central Bank at the same time discussed with banks  the possibility of achieving a certain indicator, for which it was  necessary to periodically write off toxic loans from the balance  sheet. This process continues in the current year, which explains the  stagnation of profits and the course of other processes. I will say  that the Central Bank has no disagreements with banks on the issue of  correctly reflecting the real situation in the banking system of  Armenia. I do not think that in the near future the Central Bank will  relax - this is an unlikely scenario. The main goal of this approach  is to return to the pre- covid development indicators. "-l-