Wednesday, November 9 2022 13:06
Naira Badalian

Central Bank tries to regulate inflation on its own, while RA  government watches process from side

Central Bank tries to regulate inflation on its own, while RA  government watches process from side

ArmInfo.YOY inflation in Armenia reached 9.9% in September 2022. According to the forecast set in the basis of the draft state budget for 2023, 12-month inflation  will exceed the target range (4% with a plus/minus 1.5% deviation)  by the end of the year and will amount to 8.5%, and according to the  forecast of the Central Bank, the country will complete 2022 with an  inflation rate of 10%.

Meanwhile, since February of this year, the  Central Bank has already raised the key refinancing rate several  times, because of which it became the subject of sharp criticism by  its partners, and the Armenian dram continues to appreciate against  both the US dollar and the euro. Karlen Khachatryan, Head of the  Chair of Management and Business of YSU Faculty of Economics and  Management , spoke about the "active inaction" of the authorities and  ways to curb inflation and its consequences in an interview with  ArmInfo.

- Mr. Khachatryan, according to statistics, inflation in Armenia in  January-September 2022 compared to the same period in 2021 has  already reached 8.6%, and compared to September of this year to  September 2021, to 9.9%.  At the same time, in order to curb  inflation, on November 1, the Central Bank of the Republic of Armenia  raised the refinancing rate for the 5th time this year, from 10% to  10.5%, thus repeating the historical maximum of 2015. At the same  time, the US dollar continues to fall against the Armenian dram:  if  before the Russian-Ukrainian crisis (February 24) it was at the level  of 470-480, and in early March it reached to 520, then today it costs  about 395 drams per dollar. Is inflation really an irreversible  process, and is the key rate the only tool to control inflation?

-By and large, inflationary phenomena in the Armenian economy have  intensified since December 2020 and have not mitigated their impact  for almost two years, even against the backdrop of periodic revisions  of the key refinancing rate by the Central Bank of the Republic of  Armenia and its use of monetary instruments.

The whole problem is that the economy of our country is not in the  best condition. Inflationary trends are largely due to the problems  of the economy itself - ranging from security uncertainty to  political instability and socio-economic challenges related, in  particular, to low living standards and the purchasing power of the  population. These problems are not going to be solved by themselves.

In parallel, we see unilateral attempts by the Central Bank to  regulate inflation. The financial regulator the main task of which is  to maintain price stability and curb inflation is going towards  raising the key interest rate, raising the price of money, while the  government looks at all this from the side, and being in the status  of an observer, monitors whether it will succeed in the end fix  prices. Such a course of action, of course, will not lead to the  desired result.

In order to overcome inflationary problems in the economy,  coordinated work is needed between the Central Bank and the  Government of the Republic of Armenia, represented by the Ministry of  Economy and the Ministry of Finance. Unfortunately, so far we have  not seen such efforts. Everyone tries to solve problems within the  framework of his position, and in case of failure - to shift the  blame on the other.  Meanwhile, the Ministry of Economy, in  particular, is obliged to develop targeted programs and create a more  predictable business environment. The government, in turn, should  have tried to resolve security issues: even after two years, security  challenges are acute in the Armenian economy, which is why  businessmen, having not received security guarantees, do not dare to  implement new projects or they do not dare to expand seriously.   Meanwhile, the growth in production volumes could partially alleviate  inflationary pressure, in some ways, "absorb" the increase in  purchasing power, mainly due to the stay of visitors from Russia in  Armenia.

As of today, inflation continues to form negative expectations among  the population: citizens and business sector, observing the high  inflation background, expect it to continue in the future as well, on  the basis of which they form their behavior. As a result, inflation  not only does not decline, but, on the contrary, continues to  accelerate. In addition, if we take into account that the incomes of  socially vulnerable groups of the population do not increase, while  the prices of goods, especially for essential products, are growing,  then this, in turn, leads to a decrease in living standards and new  socio-economic problems. 

-  What consequences can the maintenance of the dram's depreciating  position lead to for the country's economy?

The appreciation of the Armenian dram has a double effect on the  economy: positive and negative. On the one hand, under the conditions  of the "cheap dollar", the cost of imported goods, expressed in  drams, decreases, which has a positive effect on the price of goods.   Without the revaluation of the dram, inflation would be at a higher  level today. On the other hand, local products (goods/services) that  are exported become more expensive, making them uncompetitive in  foreign markets. In addition, foreign exchange devaluation reduces  the income of households receiving transfers from abroad, usually in  US dollars, which leads to a decline in purchasing power. In my  opinion, the negative impact of the appreciated dram  still prevails  over the positive.

- As you noticed, appreciated dram played into the hands of  importers. Nevertheless, even after almost 8 months of a confident  "offensive" of the national currency, the average consumer does not  notice the decline in prices. What is the reason for this?

There are two factors here, purely objective, an economic factor,  which is expressed as follows: Along with the devaluation of the  dollar,  the demand for products has  increased - there are more  people who want to buy these products, since a large number of  visitors arrived in Armenia, and with high purchasing power. In  particular, according to official data, in the first 10 months of  this year, the number of tourists who came to Armenia amounted to 1.4  million people, about 46% - from Russia. And demand, as we understand  it, leads to higher prices.

The second factor is related to the improper work of the controlling  state bodies, when the authorized state departments, in particular  the inspection body for market supervision, are literally inactive.   It should constantly monitor and analyze the market situation and, if  necessary, severely punish unscrupulous entrepreneurs, etc.

- Mr. Khachatryan, you noted the need to develop targeted assistance  programs by the Ministry of Economy. Recently, the department  launched an initiative to introduce support measures for IT  companies, in order, as noted, to reduce the risks caused by foreign  currency devaluation, as well as support the ability of sector  organizations to compete effectively with companies in other  countries. How expedient is this measure, given that not only "IT  people" have suffered from the revaluation of the dram?

The IT sector is undoubtedly important for the country's economy and  requires special attention. Since 2000, the government of the  Republic of Armenia has declared the sector a priority sector of the  economy, for more than 5 years, start-up companies benefited from tax  benefits, and a favorable environment has been formed for them.   However, it is necessary to objectively assess the situation, because  it is the IT sector that is characterized by high profitability and  an appropriate level of wages. Therefore, perhaps it is worth  thinking even more deeply about this - how expedient is it for the  state, with its meager financial capabilities, to support a sector  where there are already high incomes.

It is my deep conviction that in the real, export-oriented sector of  the economy, the use of state assistance tools can be much more  effective than in the IT sector. For example, companies in the  processing industry, for example, winemaking, which have been working  for years to enter foreign markets, have spent huge financial and  human resources, today find themselves in a rather difficult  situation. With this in mind, if the state, with its small  capabilities, is faced with a choice - to support the IT sector or  exporters of the real sector, I think it should make a choice in  favor of the latter.

- The Chairman of the Mantashyants Entrepreneurs Union recently  called on the authorities of the Republic of Armenia "to devalue the  dram at any cost", stating that due to the sharp revaluation of the  national currency, Armenia is at the initial stage of the "Dutch  disease". It was noted that all sectors, with the exception of HoReCa  (Hotel, Restaurant and Catering - hospitality industry. ed. note) and  banking, suffer losses, and in the future the fall of the dollar and  the revaluation of the dram will lead to the collapse of the economy.   Do you share this point of view?  

-I find it difficult to say how correct it is to project the  situation in another country to our realities, without taking into  account the specifics of the Armenian economy. Obviously, on the  basis of statistical data, we can say with confidence that today,  only the service sector is in an advantageous position, and this is  not only HoReCa, but also banking services.  Thus, in Armenia, the  growth of economic activity in January- September 2022 accelerated to  14.1% per annum. The growth of economic activity was largely  determined by the service sector - by 27.1%, to a slightly lesser  extent by the energy complex - by 16.9%, the trade sector - by 14.5%,  and the construction sector - by 14.3%. In January-September of this  year, commercial banks recorded a net profit of 188 billion drams,  which is three times higher than in the same period last year.  Recorded figures indicate that the growth is a direct result of an  increase in the number of Russian visitors.

Unfortunately, during the period of active growth this year, the  authorities have not been able to capitalize it, form certain  reserves, "airbags" in order to ensure the viability of the economy  in the event of a cessation of the flow of visitors and the capital  coming with them.  At the same time, I am against the idea of  depreciating the national currency <at any cost>. The economy is a  self-regulating organism, and the market economy involves the  relationship of supply and demand.  Artificial revaluation or  devaluation, of course, will not lead to anything good.  At this  stage, the panacea is the coordinated work of the Central Bank and  the government to develop targeted assistance programs, as well as  long-term planning. The proposed solutions should not focus on two or  three months, but on the long term.

Related articles
Central Bank forecast: Armenia to complete 2022 with an inflation rate of 10%
 Tuesday, November 1 2022

ArmInfo. Armenia will  complete 2022 with an inflation rate of 10%. Chairman of the Central  Bank of Armenia Martin Galstyan voiced a similar forecast during a  press conference on November 1. "We expect that inflation will be at  the level of 10% at the end of the year, even taking into account the  use of restraining mechanisms," he stressed.  At the same time, the  head of the Central Bank indicated that without the use of these  mechanisms, the inflation rate in the country would have reached 15%.

Armenian dram must be depreciated at any cost for economic collapse  to be prevented - Vahram Mirakyan
 Tuesday, November 1 2022

ArmInfo. Armenia is showing the initial signs of Dutch disease, says Vahram Mirakyan, Chairman of the Mantashyants entrepreneurs union.

Martin Galstyan: The external demand factor of inflation in Armenia  is increasing due to the new flow of Russians avoiding mobilization
 Monday, October 31 2022

ArmInfo.The level of annual inflation in Armenia reached 9.9% in September, equaling the indicator of the EU countries.

POST A COMMENT
Input digits     


News
Every year, Lori region loses $40 million due to untapped tourism  potentialEvery year, Lori region loses $40 million due to untapped tourism  potential
We are going round in circles: Aram Kocharyan on  current IT  situation in ArmeniaWe are going round in circles: Aram Kocharyan on  current IT  situation in Armenia
Net direct foreign investments in Armenia`s economy up Net direct foreign investments in Armenia`s economy up 
RA president signs laws nationalizing ENA CJSCRA president signs laws nationalizing ENA CJSC
Responsible innovations instead of offshores - CB Responsible innovations instead of offshores - CB 
Armenia, Uruguay to increase bilateral trade turnover Armenia, Uruguay to increase bilateral trade turnover 
Armenian vice-premier takes part in EEC Council`s meeting Armenian vice-premier takes part in EEC Council`s meeting 
Yerevan to host Black Sea Trade and Development Bank`s Annual Meeting  Yerevan to host Black Sea Trade and Development Bank`s Annual Meeting  
Solid Municipal Waste Management project launched in HrazdanSolid Municipal Waste Management project launched in Hrazdan
Armenian IT sector`s output developed as compared with other regional states - expert Armenian IT sector`s output developed as compared with other regional states - expert 
Lawyer on `legal terror` surrounding ENA Lawyer on `legal terror` surrounding ENA 
AraratBank participated in the WEPs regional experience-sharing workshopAraratBank participated in the WEPs regional experience-sharing workshop
1,507 trucks with apricots leave for Russia since beginning of summer 1,507 trucks with apricots leave for Russia since beginning of summer 
TechWeek transforms Vanadzor into an innovation hubTechWeek transforms Vanadzor into an innovation hub
In Q1 2025, unemployment rate in Armenia decreased to 13.9%In Q1 2025, unemployment rate in Armenia decreased to 13.9%
Moody`s upgrades Converse Bank`s ratingsMoody`s upgrades Converse Bank`s ratings
Armenia`s industrial sector is experiencing a significant  declineArmenia`s industrial sector is experiencing a significant  decline
Power generation in Armenia increased by 3.6% in a yearPower generation in Armenia increased by 3.6% in a year
Armenia`s State Revenue Committee proposes postponing payment of  road, environmental taxes, entry duties Armenia`s State Revenue Committee proposes postponing payment of  road, environmental taxes, entry duties 
46 trucks with Armenian brandy enter Russia 46 trucks with Armenian brandy enter Russia 
Expert: Armenia has every chance to become a key regional  hub for  innovative solutionsExpert: Armenia has every chance to become a key regional  hub for  innovative solutions
IDBank issues the 3rd, 4th and 5th tranches of bonds of 2025IDBank issues the 3rd, 4th and 5th tranches of bonds of 2025
ARMSWISSBANK Launches Mastercard World – A New Premium CardARMSWISSBANK Launches Mastercard World – A New Premium Card
Ministry of Economy: Compared to 2018, job numbers in Armenia  increased by 33.9%Ministry of Economy: Compared to 2018, job numbers in Armenia  increased by 33.9%
Illegal mining in Armenia`s Syunik causes AMD 63mln damage to public Illegal mining in Armenia`s Syunik causes AMD 63mln damage to public 
Rospotrebnadzor requested additional information from competent  authorities in Armenia regarding the reason for the ban of Eskimo ice  cream Rospotrebnadzor requested additional information from competent  authorities in Armenia regarding the reason for the ban of Eskimo ice  cream 
Pashinyan discusses steps for establishing a major AI data center in  ArmeniaPashinyan discusses steps for establishing a major AI data center in  Armenia
In June,  Armenia`s annual inflation rate increased to 3.9%  driven  by higher prices for food  and servicesIn June,  Armenia`s annual inflation rate increased to 3.9%  driven  by higher prices for food  and services
Armenian products to enter Cyprus and US markets: CIBRS announces National Warehouse program strategyArmenian products to enter Cyprus and US markets: CIBRS announces National Warehouse program strategy
European Investment Bank remains Armenia`s key partner in  infrastructure projects - MinisterEuropean Investment Bank remains Armenia`s key partner in  infrastructure projects - Minister
Armenian Parliament gives  Armenian Parliament gives  "green light" to nationalization of ENA
Armenia`s dividends from ZCMC $113mln since 2022Armenia`s dividends from ZCMC $113mln since 2022
Ardshinbank summed up the raffle organized for Mastercard Business cardholdersArdshinbank summed up the raffle organized for Mastercard Business cardholders
Armenia extends ban on export of scrap metal until Feb. 1 2026 Armenia extends ban on export of scrap metal until Feb. 1 2026 
62 trucks with Armenian brandy cross Russian border 62 trucks with Armenian brandy cross Russian border 
Armenia to fix tariff quota on individual types of goods imported  from Iran Armenia to fix tariff quota on individual types of goods imported  from Iran 
Narek Karapetyan: Almost all infrastructure companies, except for  ENA, have increased their tariffs for servicesNarek Karapetyan: Almost all infrastructure companies, except for  ENA, have increased their tariffs for services
EIB: Education is one of key areas of partnership between EU-Armenia EIB: Education is one of key areas of partnership between EU-Armenia 
Armenian Deputy Foreign Minister participates in  4th International  Conference on Financing for Development in SevilleArmenian Deputy Foreign Minister participates in  4th International  Conference on Financing for Development in Seville
Armenian Prime Minister, President of  Trafigura Group discuss  potential  cooperation  in mining sector  Armenian Prime Minister, President of  Trafigura Group discuss  potential  cooperation  in mining sector  
ADB to provide Armenia with EUR236 million for construction of  Sisian-Kajaran roadADB to provide Armenia with EUR236 million for construction of  Sisian-Kajaran road
Vassilis Maragos: EU willing to strengthen technological cooperation with Armenia through concrete stepsVassilis Maragos: EU willing to strengthen technological cooperation with Armenia through concrete steps
Ardshinbank at the Forefront of Digital Security: Sponsor and Participant of BugBounty 2025 EventArdshinbank at the Forefront of Digital Security: Sponsor and Participant of BugBounty 2025 Event
Armenia`s regulator  approved the sale of 100% of GNC-ALFA s shares  to Viva Armenia CJSCArmenia`s regulator  approved the sale of 100% of GNC-ALFA s shares  to Viva Armenia CJSC
 International Chamber of Commerce ready to assist Armenia in hosting COP-17 International Chamber of Commerce ready to assist Armenia in hosting COP-17
Armenia to extend ban on ferrous metal exportsArmenia to extend ban on ferrous metal exports
IDBank Opens a New Branch at Homplex MallIDBank Opens a New Branch at Homplex Mall
MONEYVAL experts to visit Armenia in September to assess work on money laundering control MONEYVAL experts to visit Armenia in September to assess work on money laundering control 
Goods traceability to be improved in Armenia Goods traceability to be improved in Armenia 
Vaharshapan and Khoi communities to be merged Vaharshapan and Khoi communities to be merged 
Armenian NA OKs ENA nationalization Armenian NA OKs ENA nationalization 
Viva celebrates 20th anniversary: Armenia`s high-tech industry  minister on reforms in Armenia`s telecommunication industry Viva celebrates 20th anniversary: Armenia`s high-tech industry  minister on reforms in Armenia`s telecommunication industry 
Economic diversification meets Armenia`s interests - Kaja Kallas Economic diversification meets Armenia`s interests - Kaja Kallas 
5.1% increase in number of jobs in Armenia 5.1% increase in number of jobs in Armenia 
AraratBank: Special Rate for SWIFT Transfers up to EUR 20,000AraratBank: Special Rate for SWIFT Transfers up to EUR 20,000
Team Telecom Armenia, Team Systems under one roof: new Team Place  smart solutions center  openedTeam Telecom Armenia, Team Systems under one roof: new Team Place  smart solutions center  opened
Armenian Parliament discussing  nationalization of Electric Networks  of Armenia CJSCArmenian Parliament discussing  nationalization of Electric Networks  of Armenia CJSC
Armenia values development of  cooperation with Denmark in  high  technology and renewable energyArmenia values development of  cooperation with Denmark in  high  technology and renewable energy
ArmSwissBank: First in Armenia to Publish a Climate Transition PlanArmSwissBank: First in Armenia to Publish a Climate Transition Plan
Ucom Launches 5G Network in Abovyan and EjmiatsinUcom Launches 5G Network in Abovyan and Ejmiatsin
Read more
Exchange rates
09.07.2025
RUB4.910.01
USD383.82-0.37
EUR449.11-1.47
GBP521.34-0.31
CAD280.24-1.11
JPY26.18-0.06
CNY53.46-0.08
CHF482.060.44