Over the next three years, the Central Bank of Armenia (CBA) plans to reduce its inflation target from the current 4% to 3%. This decision aims to align the target with public perceptions of price stability and enhance trust in the regulator’s monetary policy.
According to Armenpress, Hayk Avetisyan, Director of the CBA’s Macroeconomics Department, noted that since the 4% target was established in 2006, the country’s average inflation rate has been 3.9%. However, during periods of economic shocks, heightened price volatility suggested a potential disconnect between the 4% target and the public’s expectations of price stability.
In recent years, Armenia has undergone significant institutional changes in its economy. For example, the methodology for calculating statistical indicators has been improved. Previously, the consumer basket was updated every five years, but it is now revised annually, providing a more accurate reflection of actual consumption patterns.
Edgar Agabekyan, an expert at the "Amberd" Research Center, views the Central Bank’s decision as a positive step but notes potential short-term risks. He suggests that achieving a lower inflation target may require temporarily maintaining higher interest rates, which could impact the financial sector. However, in the long term, this policy could lead to lower nominal interest rates due to reduced real rates.
It is worth noting that a 3% inflation target is typical of more developed countries with stable institutional systems, such as Mexico, Chile, Colombia, Georgia, Hungary, the Philippines, and Indonesia. According to CBA representatives, Armenia’s monetary system has reached a sufficient level of maturity to join this group.
Currently, Armenia’s annual inflation rate stands at just 0.6%, significantly below the existing target.
