CBA: Weak deflationary impact from external sector on Armenian  economy to remain

ArmInfo. The weak deflationary impact from the external sector on the Armenian economy will  continue. During the press conference held on October 31, Governor of the RA Central Bank, Martin Galstyan, presented such a forecast regarding the reduction of the refinancing rate from 9.75% to 9.5%.

"In recent months, a slight acceleration in domestic demand has been  observed in Armenia's main partner countries. At the same time, due  to geopolitical developments, the uncertainty of global economic  growth has increased and volatility in international commodity  markets has increased. YOY inflation in partner countries continues  to exceed the target level. Under these conditions, the central banks  of these countries will continue to pursue contractionary monetary  policy in the near future," the head of the Central Bank explained.

At the same time, he noted that in September of this year, official  y-o-y inflation in Armenia decreased to 0.1% (from 9.9% a year  earlier), and the basic indicator was at a deflationary the level of  0.1% (versus inflation of 10.5% a year earlier).

There were stronger-than-expected economic activity in Armenia in  recent months , which continues to be supported by strong growth in  the construction and services sectors. At the same time, domestic  demand continues to expand in the economy. In the context of weak  deflationary influence from the external sector and the ongoing  contractionary monetary policy, a low inflationary environment  remains, which is reflected by a slowdown in wage growth in the labor  market.

In the current situation, the Central Bank Board considered it  appropriate to once again reduce the refinancing rate - this time by  0.25 percentage points. The Central Bank Board  will continue to  consistently take the necessary steps to ensure demand adjustment and  stabilization of inflation expectations. YOY inflation will remain  below the target threshold in the near future under the scenario  outlined by the Monetary Policy, but in the medium term it will  gradually increase and stabilize around the target of 4%.

According to the Central Bank Board, the risks of inflation deviating  from the planned trajectory are largely balanced, but if risks of any  direction arise, the Central Bank will react appropriately in order  to ensure price stability.

In 2023, the refinancing rate remained at a record level of 10.75%  until almost mid-June, after which reductions followed one after  another - three times by 0.25 percentage points  and once by 0.5  percentage points: June 13 - up to 10.5%, August 1 - up to 10.25%,  September 12 - up to 9.75% and October 31 - up to 9.5%. Before this,  the Central Bank regularly raised the key rate for two years - in  2021-2022 (twelve times), first to a historical maximum of 10.5%, and  then to a new record level of 10.75%. And even earlier in 2020, the  Central Bank, after reducing the refinancing rate four times (March,  April, June, September 2020) from 5.5% to 4.25%, in December of the  same year raised it to 5.25% and then continued to increase over the  next two years. Let us recall that in previous years, the historical  maximum refinancing rate was recorded in 2015 - up to 10.5%, in  particular on February 10, by 1 percentage point,  from 9.5% to  10.5%.