Tuesday, May 2 2023 22:07

ArmInfo. The scenario of the planned monetary policy (MP) of the Central Bank of RA envisages a rapid  decline in y-o-y inflation, which will be below the target level in the near future, and will stabilize at the target level of 4% in the medium term. Head of the Central Bank of the Republic of Armenia Martin Galstyan stated on May 2 during a press conference, presenting the rationale for the regulatory decision to keep the refinancing  rate at the level of 10.75%.

In March 2023, the official y-o-y inflation in the consumer market of  Armenia decreased to 5.4% from the y-o-y inflation rate of 7.4% in  March 2022. The y-o-y core inflation calculated by the Central Bank  also decreased - to 6.4% in March 2023 from they-o-y inflation rate  of 7% in March 2022.

At the same time, he noted that in Q1 2023, the slow growth rates of  the global economy and the GDP of the main partner countries of  Armenia were maintained. It is assumed that the problems that have  arisen in the U.S. banking system are generally not of a systemic  nature and will not have a significant macroeconomic impact. YOY  inflation continues to decline in Armenia's partner countries, but  the overall inflationary environment remains high due to continued  strong demand and labor market pressures. In this regard, in the near  future, the central banks of the partner countries will continue to  tighten monetary conditions. Tight international financial conditions  are driving down commodity prices. As a result, external inflationary  pressure on the Armenian economy continues to weaken.

The Armenian economy remained strong in early 2023, supported by  strong growth in the services and construction sectors. Aggregate  demand remains strong amid continued large inflows of capital and  labor immigrants, a significant increase in tourism and income growth  in the country's economy. As a result of the ongoing contractionary  monetary policy, the dram will revalue and the inflationary impact  coming from the external sector will weaken, the y-o-y inflation in  Armenia will decrease.

Nevertheless, high demand and inflationary expectations still  continue to influence wages and maintain high inflation for certain  groups of goods and services.

In this regard, the Board of the Central Bank considered it expedient  to leave the refinancing rate unchanged for the time being - at the  level of 10.75% (according to the decision of May 2, 2023). The Board  of the Central Bank will continue to consistently take appropriate  steps to regulate demand and stabilize inflation expectations.  According to the Central Bank Board, the risks of inflation deviating  from the planned trajectory are basically balanced. If they move in  any direction, the Central Bank Board will react accordingly in order  to ensure price stability.

It should be noted that in December 2022, the official y-o-y  inflation was 8.3% in Armenia (according to statistical data), and  the core y-o-y inflation was 9.5% (according to the Central Bank of  the Republic of Armenia), against the y-o-y inflation of 7.7% and  7.3%, respectively ( official and basic) in December 2021.

It would be appropriate to recall that the refinancing rate was  raised to the level of 10.75% by the Central Bank on December 13,  2022, and this turned out to be a new historical maximum after 10.5%  in 2015. The previous five increases in the refinancing rate - took  place in 2022 in February from 7.75% to 8%, to 9.25% in March, to  9.5% in August, to 10% in September and to 10.5% in November. And  from 2021 to December 13, 2022 inclusive, there were twelve increases  in the refinancing rate - in total from 5.25% to 10.75%. In previous  years, the historical maximum of the refinancing rate was fixed in  2015 - 10.5% (according to the February decision of the Central  Bank), with a repetition of this level in 2022 (according to the  November decision of the Central Bank).