The Central Bank of Armenia will continue to lower the refinancing rate, which is expected to reach 7.5% by the end of 2024, down from the current 8%. This adjustment is based on sustained inflation remaining below the Central Bank's target range of 4±1.5%, according to the Eurasian Development Bank (EDB) macroeconomic forecast.
The EDB estimates that the restraining effect of monetary policy on demand will gradually wane over the course of the year. In 2025, the interbank lending rate is projected to stabilize around 7%, aligning with inflation remaining within the Central Bank of Armenia's target range.
The average annual exchange rate of the dram to the dollar is forecasted to be 396 drams in 2024. Inflows of remittances, strong export performance, and stable tourism activity will support the national currency this year.
In the medium term, several factors are expected to contribute to some depreciation of the Armenian dram. "These include adjustments in export growth rates, devaluation expectations due to geopolitical situations, lower money market rates, and slower economic growth," the EDB report states.
The impact of fiscal policy on demand in 2024 is expected to be stimulative, given the government's plans to expand the budget deficit to 4.6% of GDP from 2.0% in 2023. This increase is associated with a rise in expenditures by 1.1 percentage points to 28.7% of GDP.
"The government plans to increase capital expenditure levels by 0.6 percentage points to 6.6% of GDP in 2024 and maintain them at this level until 2026. Implementing this plan will enhance productivity and increase Armenia's potential economic growth in the medium term. Under the 'Medium-Term Expenditure Program of the Government of the Republic of Armenia for 2024–2026,' expenditure levels are expected to stabilize around 28% of GDP, with tax revenues growing by 0.6 percentage points annually," the report concludes.
