Tuesday, April 30 2024 15:10

ArmInfo.The Board of the CBA today reduced the refinancing rate to 8.25%, the press service of the  Bank reports.

According to the source, "at its meeting today, the Board of the  Central Bank of Armenia decided to decrease the key policy rate  (refinancing rate) by 0.25 percentage points, setting it at 8.25  percent. The Board agrees that a lower refinancing rate is necessary  to continue to meet its price stability objective of ensuring an  inflation rate of 4 percent over the medium term.

Annual CPI inflation has continued to remain at low levels well below  the target, registering -1.2% in March 2024. Core inflation also  continued to decrease, at -0.7% year-over-year in March.

In the first quarter of 2024, risks of slowing economic growth  globally and in the key trading partner countries of Armenia continue  to persist. Global inflation continues to decline, but sticky prices  continue to remain relatively elevated in key trading partner  economies. At the same time, overheated labor market conditions  continue to contribute to sustained high demand conditions in key  trading partner economies.  Geopolitical tensions in the Middle East  since the beginning of the year continue to create risks for future  growth in global energy prices and potential disruptions in global  supply chains. In this context, it is likely that key trading partner  central banks, and in particular the US Fed, would maintain tight  monetary conditions for longer. Consequently, weak deflationary  effects are expected from the external sector on the Armenian  economy.

Economic activity in Armenia remained robust in the first quarter,  continuing to be largely driven by meaningful growth in the trade and  industry sectors. The latter continues to be impacted by certain  short term factors, carrying real uncertainties with respect to the  sustainability of economic growth and its long- term outlook.  External demand for domestic services is slowing, while high growth  in private investments continues to contribute to domestic demand. At  the same time, risks for additional demand pressures stemming from  fiscal policy continue to persist. The inflationary environment in  Armenia continues to remain low, driven by the monetary policy  implemented by the CBA in recent years, weak deflationary pressures  from the external sector, and the implications of the appreciated  dram. At the same time, growth in labor supply has somewhat eased  labor market conditions, which has been reflected in cooling wage  growth as well as declining non-traded sticky price inflation and  inflation expectations.

In the face of high uncertainty, and given its commitment to  achieving the price stability objective, the Board considers multiple  scenarios during its deliberations. On the one hand, the Board  discussed scenarios where possible underlying developments-including  tighter monetary conditions in key trading partner countries, as well  as uncertainty related to the country risk premium and neutral  interest rates-would require a tighter policy stance relative to  current market expectations in order to manage risks that threaten  the price stability objective. On the other hand, the Board discussed  scenarios where potential economic developments-including continued  growth in domestic labor supply, as well as a rapid deceleration in  demand-would cause inflation to persistently remain at a low level.  This would imply a more rapid and aggressive downward path for the  policy rate than what is currently priced in markets in order to  sustainably bring inflation back to target in the medium-term  horizon.

In summary, balancing the aforementioned risks in both directions,  the Board of the Central Bank of Armenia finds it appropriate to  continue to gradually ease the policy stance. The Board will continue  to monitor risk scenarios, and stands ready to take adequate actions  to ensure that the price stability objective of 4 percent inflation  over the medium-term horizon is met," the CBA notes.