The Council of the Central Bank of Armenia has decided to lower the refinancing rate to 8.5%, in response to the weakening external inflationary pressures and considering the gradual increase in the labor force supply along with a slight decrease in demand. This announcement was made by the Chairman of the Central Bank of Armenia Martin Galstyan during a press conference on March 11.
Galstyan highlighted that in February of the current year, the 12-month inflation in Armenia continued to decline, reaching a deflation of -1.7%. He noted that the decision to reduce the key rate is "motivated by the desire to achieve a mid-term inflation target of 4% (±1.5%) and ensure price stability."
"In the fourth quarter of 2023, economic activity in Armenia remained high, especially due to growth in the construction and trade sectors. Despite positive indicators, inflation in Armenia remains low, attributed to the Central Bank of Armenia's restrained monetary policy, deflationary effects from the external sector, and the strengthening dram," stated Martin Galstyan, noting that the increase in the labor force reserve has also contributed to reducing inflationary pressures.
At the same time, according to the head of the Central Bank, inflation risks have not completely disappeared. “They are closely linked to uncertainties both in external markets and around the geopolitical situation surrounding Armenia,” he added.
"In the conditions of growing geopolitical tensions in the Middle East, supply chain issues, and intensification of financial-economic difficulties in China, there are risks associated with slowing global economic growth and volatility in prices on global commodity markets," the Council's decision, read by Martin Galstyan during the press conference, stated.
Another factor contributing to uncertainty is the challenging geopolitical situation around Armenia. "Over 40% of respondents surveyed by the Central Bank are concerned about uncertainty. I think this is natural, as the presence of geopolitical processes around Armenia should have solidified these expectations among people," said the head of the Central Bank of Armenia.
According to Galstyan, the uncertainty and the risks associated with it require stricter measures to restrain domestic demand in the medium term, anchor inflation expectations, and achieve price stability.
However, after weighing all the pros and cons, the Central Bank's Council decided on the most balanced approach. "The Central Bank of Armenia has decided to continue a gradual easing at a slow pace," stated Galstyan.
Earlier, BMG reported that the previous changes in the refinancing rate occurred since December 15, 2020, regularly increasing from 4.25% to 10.75%. Representatives of the Central Bank mentioned that such steps were taken to control inflation.
The economic growth of Armenia in the 2024 state budget is projected at 7%, with inflation set at 4% (±1.5%).
