ArmInfo.In connection with the ongoing Russian-Ukrainian crisis, the Central Bank of Armenia forecasts a further increase in inflation. Head of the Central Bank of Armenia Martin Galstyan stated this during the sitting of the NA Standing Committee on Economic Affairs.
In this regard, Galstyan recalled that a few days earlier, the Central Bank decided to raise the refinancing rate by 1.25 percentage points, which was associated not only with concerns about inflationary expectations, but also with an increase in the risk premium. The chief banker assumed a priori that if Armenia now issues Eurobonds on the international market, the yield of the latter in dollar terms will exceed 8%. <If in normal times the risk premium was 3%, now this figure has risen to 6%. This is due to the uncertainty in the region. If investors continue to invest in this region, they would like to receive a compensation of 6%," he explained.
Galstyan positively assessed the issue by the government of Eurobonds in the amount of $750 million in January 2021. "About 2 months after the war, convincing international investors to invest $750 million in Eurobonds was a smart move, I think," the head of the Central Bank recalled, noting that investors then focused on the history of Armenia's macroeconomic stability. Considering the increase in the refinancing rate as a tool to influence the containment of price growth, Galstyan noted that if inflation is at a level that creates problems for the security of specific social groups, then it will be necessary to use other targeted instruments that are outside the Central Bank's tools.
It should be noted that the Board of the Central Bank of Armenia considered it expedient to increase the refinancing rate by a relatively large step - by 1.25 percentage points up to 9.25%. According to the estimates of the Board of the Central Bank, if the overall uncertainty regarding the economic outlook persists and the risks of rising inflationary expectations increase, the regulator may soon consider the need for further tightening of monetary conditions. The result will be a gradual decline in y-o-y inflation, approaching the target threshold of 4% over the forecast horizon.
