International credit rating agency Fitch highlights growing geopolitical uncertainty for Armenia amidst deteriorating relations with Russia and progress in negotiations with Azerbaijan, while also recognizing the country’s achievements in controlling inflation.
According to Fitch, Armenia’s relations with Russia are strained as Yerevan explores potential membership in the European Union, a move that may conflict with its participation in the Eurasian Economic Union. Prime Minister Nikol Pashinyan has also expressed a desire to leave the Russian-led Collective Security Treaty Organization (CSTO). However, a complete severance of ties is unlikely due to Armenia’s heavy reliance on Russia for energy and trade—Russia accounts for 24% of Armenia’s exports and 56% of its imports.
On the monetary policy front, starting in January 2025, the Central Bank of Armenia reduced its medium-term inflation target to 3% (with a fluctuation range of ±1 percentage point). While Armenia has historically maintained lower inflation levels compared to similarly rated peers, the country has experienced challenges in consistently achieving its previous target of 4% (set in 2006 with a range of ±1.5 percentage points).
Fitch forecasts average inflation to reach 3.3% in 2025–2026, factoring in an anticipated weakening of the Armenian dram and a relaxation of fiscal policies. In 2024, the central bank reduced the key interest rate by a total of 225 basis points, although further room for rate cuts remains limited.
