Central Bank Governor: As risk environment softens, interest rates  will decline

ArmInfo.A reduction in interest rates on loans is possible only if the overall risk  environment softens, which will also adjust deposit rates downward.  Governor of the Central Bank of Armenia, Martin Galstyan, commented  on the possible impact of reducing the refinancing rate on bank  lending rates during a press conference.

In this regard, he recalled that the Central Bank increased the  refinancing rate by a total of 7 percentage points from 4.25% to  10.75%, on the beginning of December 2020 to the summer of 2023,  but  banks did not raise their interest rates commensurately. To which he  noted: "Price setting is formed on the basis of supply and demand,  taking into account risks and potential development processes. If we  concentrate only on macroeconomic and financial risks, then,  according to him, easing monetary conditions should lead to a general  decrease in interest rates ".

He also touched on the impact of the refinancing rate on the cost of  mortgage loans. Having defined them as specific, Galstyan noted that  in the case of mortgage loans, there is a logic of a floating  interest rate. "We see that with an increase in the key rate, an  increase in mortgage rates was recorded. If we further reduce the key  rate, then, in a certain sense, mortgages will also adjust downward,"  said the head of the Central Bank.

At the same time, Galstyan noted that the refinancing rate and the  securities market are more closely related. Thus, according to him,  the reduction in the key rate affected the government bond yield  curve. "I think that as a result of the current decline, we will see  the yield curve adjust downward," he noted.  On September 12 of this  year, the Central Bank of RA reduced the refinancing rate again, this  time by 0.5 percentage points - from 10.25% to 9.75%. This is the  third reduction this year, after two years of increase with reaching  a historical maximum of 10.75% at the end of 2022 and maintaining  this level until June 13 of this year, when the first reduction of  0.25 percentage points took place, and then on August 1 there was a  second reduction in the same amount.