ArmInfo.The Central Bank of Armenia, having promptly reacted to curbing inflation, can now afford to reduce the refinancing rate for the second time. Deputy Chairman of the Central Bank of the Republic of Armenia Armen Nurbekyan expressed this opinion during today's press conference on the next reduction of the refinancing rate from 10.5% to 10.25%.
It should be noted that over the previous two years, from December 2020 to December 2022, the Central Bank of the Republic of Armenia raised the refinancing rate thirteen times - from 4.25% to a record 10.75%, maintaining this level until June 13, 2023, when the first reduction to 10.5% and from August 1 the second one- by the same 0.25% took place.
The reduction of the refinancing rate in Armenia is associated with a significant easing of the inflationary environment. As Nurbekyan noted: "Official y-o-y inflation continued its rapid decline reaching 0.5% deflation in June this year (from y-o-y 10.3% inflation in June 2022), along with which the core y-o-y inflation also decreased to 1.5% in June this year (from y-o-y 9.4% inflation in June 2022)".
Price stabilization in the international commodity markets significantly reduces the degree of external inflationary pressure on Armenia. On the other hand, the country is registering higher than expected economic activity, especially in the construction and services sectors. These factors, along with the still ongoing inflows of capital, labor and tourists, provide conditions for the possibility of a reduction in the refinancing rate.
In Q2 2023, the global economy maintained low economic activity and y-o-y inflation continued to decline. However, the cost of rigidly priced goods and services remains high in all partner countries, with continued inflationary pressures coming from labor markets. Therefore, the central banks of the partner countries will continue to pursue a contractionary monetary policy in the near future.
At the same time, Nurbekyan noted that along with the weakening of exogenous price factors, a restrained monetary policy and a significant appreciation of the dram led to the reduction of inflationary environment. And, nevertheless, the country has a high level of aggregate demand and inflationary expectations have not yet been overcome, within which the decline in prices for services and some goods is corrected at a very slow pace.
As he noted, according to the scenario of the Central Bank of Armenia, inflation in Armenia will be quite low in the short term, then it will gradually increase and will approach the target level of 4% in the medium term.
Commenting on the Fitch rating agency's forecast of a moderate depreciation of the Armenian dram (this is also mentioned in the EDB's forecast analysis, ed. note), Nurbekyan noted that so far there are no factors that indicate a possible depreciation of the dram, since the inflow of capital and skilled labor, although stabilized, but continues to be at a high level. "This issue can also be related to the growth of productivity in the conditions of high economic activity, which is also associated with the revaluation of the national currency. Nevertheless, the scenario of a gradual depreciation of the dram is possible, since there are a large number of factors affecting the exchange rate, including geopolitical ones," Nurbekyan concluded.
