ArmInfo. In 2023, Armenia will experience a significant increase in domestic demand. Governor of the Central Bank of the Republic of Armenia Martin Galstyan stated on November 15 from the rostrum of the National Assembly of the Republic of Armenia.
According to him, this fact is extremely important from the point of view of managing inflationary pressures. The further development of domestic demand will largely depend on the development of the geopolitical situation. To counter these trends, both commercial banks and the Central Bank are attempting to make "security cushions", the funds of which are used in case of adverse developments. according to the chief banker, Since 2020, Armenia, has gone through numerous crises, which were overcome with honor. In subsequent years, the process of making "security cushions" will continue.
As for the possible risks associated with sharp fluctuations in the national currency, as Galstyan noted, the Central Bank focuses more on curbing inflation rather than on reducing or increasing the exchange rate. Based on the results of this year, the Central Bank forecasts inflation below the target level of 4% (+-1.5%). Next year, the inflation rate will be closer to its target . Developments may be associated with the movement of external accounts, which can lead to both devaluation and revaluation of the national currency. In this situation, the creation of fiscal and monetary "security cushions" is aimed at finding solutions that will not affect macroeconomic stability. Galstyan noted that the main goal of the Central Bank in 2024 will be to ensure a low inflation environment, which will create the preconditions for attracting investment to the country.
The head of the Central Bank also recalled that the Central Bank of Armenia became the only bank in the world that proactively increased the refinancing rate in 2020. At that time, almost all the central banks of the world, in the fight against coronavirus infection, in order to reduce the scale of the impact on the economies of their countries, took a different path, and as a result they were mistaken in their assessments.
"We believed that the artificial demand created during the COVID-19 period could lead to additional inflationary pressures, and, as a result, the Central Bank became one of the first banks in the world to solve the problem of inflation, which does not exist in Armenia today. "Against the backdrop of the actions of the central banks of the world, which subsequently constantly raised key rates or maintained them at a high level, the Central Bank of Armenia became one of the first banks to begin the process of reducing rates, as a result of which since June of this year they have decreased by 1.25%. All this was the result of our proactive policy," the head of the Central Bank said.
He added that the country's international reserves have grown significantly over the past 2 years, exceeding $4 billion, but this does not mean that these funds should be used to contain existing risks that need to be managed by correct monetary policy. "These funds create comfortable conditions for responding to very difficult situations," the chief banker emphasized, adding that a large amount of foreign exchange was purchased from the market last year to curb the huge supply in the face of lack of adequate demand, rather than to replenish reserves.
In August, the Central Bank of Armenia increased the Counter-cyclical capital buffer rate of commercial banks, from 1% to 1.5%. The average market indicator of the capital adequacy ratio of banks (N1/1 min 6.2%) based on the results of 9 months of the current year increased from 27% to 29% year-on-year, and the total capital adequacy ratio (N1/2 min 11%) - from 28% up to 32%.
In parallel, there was a decrease in the average market indicator of liquidity ratio- current, short-term and long-term, and only the level of total liquidity (N2/1 min 15%) increased imperceptibly - from 38% to 38.3%. Thus, on average for the market, the current liquidity ratio (N2/2 min 60%) decreased over the year from 139.2% to 138.6%, the short-term liquidity ratio (LCR min 100%, N2/3) - from 350.3% up to 283.5%, long-term liquidity ratio (NSFR min 100%, N2/4) - from 162.6% to 148.2%. Moreover, the current liquidity ratio on average in the market went down due to the weak dynamics of highly liquid assets with a significant increase in demand liabilities.
As for the two ratios introduced later (in mid-2022) (N5/1 max 10% and N5/2 max 5%) designed to contain risks on mortgage loans, their average market indicator this year showed growth in the first quarter alone, after which it started to decrease on a quarterly basis, to 1.9% and 0.6%, and noticeably in the case of foreign currency mortgage loans.
