The Central Bank of Armenia (CBA) has published a new economic forecast, presenting a complex picture of the country’s financial future. According to the latest report, published on the CBA’s official website, market participants' expectations regarding the refinancing rate have been revised downward.
On Tuesday, September 10, the CBA Board decided to further reduce the refinancing rate by 0.25 percentage points, setting it at 7.5%.
Analysis shows that market participants predict a gradual decline in the refinancing rate over the next eight CBA decisions. This expectation is also reflected in the bond market, where the short-term yield curve has shifted downward following previous rate decisions, while the long-term portion has remained stable.
The report places particular emphasis on country risk. Despite a reduction in country risk premiums in other developing countries, Armenia's premium has remained consistently low since the beginning of the year but has shown a tendency to rise in recent weeks. The CBA notes that the country risk premium reflects Armenia's specific regional challenges, including border tensions and geopolitical developments.
To manage potential risks, the Central Bank is considering various economic development scenarios. Scenario "A" envisions a higher policy rate trajectory compared to market expectations, accounting for the risks of a rapid adjustment in the country’s risk premium. Conversely, Scenario "B" suggests a lower rate trajectory, based on the risks of developing a weaker demand environment within the domestic economy.
The CBA also highlights several macroeconomic risks. Among them are rising unemployment, slowing wage growth in the private sector, and the persistence of a weak inflationary environment. These factors may contribute to the formation and continuation of weak aggregate demand conditions in the medium term.
However, not all forecasts are negative. Armenia’s macroeconomic stability and strong economic growth create certain positive conditions for a potential re-evaluation of the country’s risk and a lowering of the neutral interest rate.
In conclusion, the Central Bank of Armenia emphasizes that it will continue to closely monitor the economic situation and adjust its policy in response to developments. The primary goal is to ensure the stability and growth of the country's economy in challenging and evolving conditions.
