Armenia’s central bank kept its benchmark refinancing rate at 6.0 percent for the fifth time in a row, but said a gradual neutralization of monetary stimulus will be necessary in the near future to reach the inflation target as inflation expectations were growing slightly faster than the rise in international food prices and supply at retail markets.
However, the board of the Central Bank of Armenia (CBA) still wants to maintain the current monetary stimulus for now given the current state of inflation and inflation expectations and will adjust its monetary policy stance if inflation and other macroeconomic indices deviate from the forecast.
The CBA has maintained its key rate since February after cutting it 12 times by a total of 450 basis points from 10.50 percent from August 2015.
The CBA targets inflation of 12.50 – 5.50 percent around a 4.0 percent midpoint.
Inflation in Armenia rose to 1.2 percent in October from 1.0 percent, with the CBA saying lower-than-expected fruit and vegetable prices are keeping the overall rate down but this impact will change in coming months though inflation should remain within the acceptable range.
Over the past nine months economic activity in Armenia has been high, supported by strong growth in industry and services. Domestic demand has been recovering at a pace that is faster than expected, helped by growth in money transfers from abroad and the central bank’s expansive monetary policy.
Rising demand in Armenia – sandwiched between Turkey, Azerbaijan, Iran and Georgia – is reflected in high growth of imports, the CBA said.
Last month the central bank noted that credit had risen 10 percent in August from July while imports had risen 14.6 percent and money transfers in the third quarter had risen a net 16.0 percent due to positive developments in Russia’s economy.
Armenia’s economy grew by an annual rate of 5.5 percent in the second quarter of this year, down from 6.5 percent in the first quarter.
Armenia holds rate, but gradual tightening in near future