EDB:  Armenia`s Central Bank may tighten monetary policy due to  increased risks of external inflation from the Middle East escalation 

ArmInfo.The increased risks of a stronger external inflationary impact amid the geopolitical escalation in the Middle East are raising the likelihood of a tighter monetary policy trajectory for the Central Bank of Armenia than previously anticipated, as noted in the weekly macro review by the Eurasian Development Bank (EDB).  

The same macro review mentions that on June  17 of this year, the Central Bank of Armenia left the refinancing  rate at 6.75%. On that same day, the Regulator also noted that  inflation expectations and the growth of service prices  in Armenia  had stabilized.

 Let us recall that prior to the press conference on the refinancing  rate on June 17, the head of the Central Bank of Armenia, Martin  Galstyan, said in the National Assembly of Armenia on the same day:  "The factor of the Iran-Israel conflict may lead to an increase in  the refinancing rate. We live in a time and region where risks are  incomparably higher, and this should have been reflected in the  refinancing rate, which should have been higher. Our most important  task is to maintain macroeconomic stability. In this regard, Armenia  is the point where this stability is upheld. We have a low budget  deficit, public debt below 50%, established tax regulations and a low  inflation rate. In other words, we have a solid foundation on which  to build structural reforms in infrastructure, education, science,  sports, to attract investments to the country." He pointed out the  fact that the Central Bank, in its decision of June 17, left the  refinancing rate at the existing level of 6.75%, taking into account  even the unpredictable nature of the Iran-Israel conflict.

 Commenting on the impact of the escalation of the Iran-Israel  conflict on the stability of Armenia's banking system, the head of  the Central Bank of Armenia noted: "Currently, the banking system of  Armenia does not have any issues in countering possible risks."  Touching upon the increase in the level of capitalization of banks   to maintain the stability of the financial system, he recalled that  the Central Bank has tightened the countercyclical capital buffer  since May 2025 - from 1.5% to 1.75% of risk-weighted assets: "We are  talking about approximately additional capital of 150 billion drams,  and in this context, given that we are closely monitoring the  situation, I think we do not have any issues in  countering risks,"  the head of the Central Bank emphasized. It was noted that in the  context of ongoing geopolitical uncertainty, the probability of  materialization of systemic (cyclical) risks remains high, and the  use of this surcharge is aimed at supporting the stability of the  banking sector. In addition to the countercyclical capital buffer,  there are also regulatory surcharges to the capital adequacy level,  such as the capital conservation buffer (protective) - increased from  2% to 2.5% from May 2025, and for systemically important banks - an  additional capital buffer at the level of 1.5%.