Wednesday, October 20 2021 18:16

ArmInfo. Recovery of consumer demand slowed down  in Armenia. The completion of the active recovery phase against the  background of the gradual exhaustion of deferred demand continues to  influence the dynamics of retail trade and accommodation and catering  services (growth by 0.1% y / y and 82.8% y / y in August,  respectively).

Due to the realization of deferred demand and  heightened inflationary expectations, the growth rates of household  savings slowed down. Lending to the population weakened (to 1.9%  y-o-y compared to 20.5% y-o-y in August of the previous year) amid  continued uncertainty in the economic situation, increased interest  rates, and weak demand for loans.  This is stated in the October  analytical macro review of the Eurasian Development Bank (EDB).  According to the materials, consumer prices in Armenia rose by 8.9% y  -o- y in September after 8.8% y -o- y in August. Inflation  accelerated due to higher prices for imported non-food products and  high food prices.  Pro-inflationary factors continue to be global  supply delays and inflationary expectations.

According to the baseline forecast of the EDB, subject to the  stability of the dram exchange rate and stabilization of world prices  for raw materials, inflation in Armenia is expected to slow down at  the end of this year, including due to the tightening of monetary  policy. In December, price growth is expected to slow down to 8.0% y  -o- y, and by the end of the first half of 2022, the indicator will  return to the target interval of the Central Bank of Armenia.

Against the background of a sharp reduction in monetary stimulus due  to increased inflation and inflationary expectations, the monetary  policy of the Central Bank of Armenia will become neutral in the 4th  quarter of 2021. The interbank loan rate, according to the baseline  scenario of the EDB forecast, may rise to 7.5-7.75% against the end  of this year, following the refinancing rate.  According to EDB  analysts, the latent force of "covid damage" in the global economy  and the strongest influence of monetary policy are such that  neutralizing the inflationary impact of these factors may take longer  than expected. The risks of inflation fixing at elevated levels are  growing. Therefore, EDB analysts admit a further increase in key  interest rates in the bank's states by the end of the year.   According to the financial analytics service of ArmInfo, in the  banking sector of Armenia, after a long decline, interest rates went  up since August 2021, which increased the margin of active-passive  operations to 5.5-6% from 4.5-5% a year earlier. In August of this  year, an increase in interest rates was observed both on loans- up to  10.82% on average (from 9.84% in August 2020), and for deposits - up  to 4.8% on average (from 4.72% in August 2020), while in July the  rise in the cost of loans from 9.25% to 10.19% was accompanied by a  decrease in the cost of deposits from 4.66% to 4.58%.

In January-August of this year, the average interest rate on loans  was 10.2%, exceeding the level of a year ago (9.94%), but yielding to  the pre-covid 10.44% (January-August 2019). At the same time, the  average interest rate on deposits in January-August this year  amounted to 4.74%, slightly falling short of last year's 4.8%  (January-August 2020), and more noticeably yielding to the pre-covid  5.28% (January-August 2019).  It is noteworthy that the yield on  government bonds began to show signs of growth a little earlier -  already in June, increasing by 1 percentage point every month,  reaching the level of 8.95% in August, in particular, for government  short-term bonds - 8.29% and mid term ones- 9 , 6%. In January-August  of this year, the average yield on government bonds was 7.82%, after  falling from 13.40% in 2015 to 6.23% in 2020. In particular, the  average yield on short-term government bonds in January-August 2021  amounted to 7.08%, on medium-term - 8.55%, on long-term - 9.82%,  after a decrease, respectively, from 12 , 52%, 14.48%, 16.12% in 2015  to 5.70%, 6.85%, 8.62% in 2020.

Note that on September 14, the Council of the Central Bank of Armenia  once again raised the refinancing rate - from 7% to 7.25%. In this  regard, rates on lombard repo and on deposits attracted from banks  were also increased by 0.25% percentage points - to 8.75% and 5.75%,  respectively. In 2021, this is the fifth increase in the refinancing  rate.