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CENTRAL BANK OF ARMENIA KEEPS INTEREST RATE STABLE EVEN AS INFLATION REMAINS ABOVE TARGET IN SEPTEMBER
BYLINE: Venla Sipila
World Markets Research Centre
Global Insight
October 13, 2010
The Central Bank of Armenia (CBA) has opted to retain its refinancing
interest rate unchanged at 7.25% in September, Reuters reports. This
was the fifth consecutive month that a similar decision was taken,
following a tightening cycle (seeArmenia: 9 June 2010:). The decision
was taken as the latest consumer price figures from the Armenian
Statistical Service show that inflation in September reached 8.6%
year-on-year (y/y). This result marks moderation from the August rate
of 9.6% y/y, but still indicates inflation far above the CBA's target
rate of 4% +/- 1.5 percentage points. In month-on-month (m/m) terms,
prices fell by 0.2% in September. The Bank stated that, although
external inflation pressures remained notable, domestic inflation
risks had actually started to ease. Indeed, the annual growth in
consumer prices was driven by a sharp 12.7% y/y gain in the cost
of food, while prices of non-price goods and services increased by
clearly more moderate rates of 6.1% y/y and 5.2% y/y.
Significance:The Armenian economy is currently recovering from an
extremely severe recession, and the monetary officials are seeking
to do all they can order to support economic activity. The central
bank hopes that a lower refinancing rate will in turn encourage bank
lending. In practice, this channel is still relatively weak, given
the undeveloped financial sector and the high degree of dollarisation.
While not only external, given that Armenian agricultural output
has also been very poor this year, the recent spike in food prices
indeed reflects supply side price pressures, and the impact from this
on inflation is likely to ease going forward. Meanwhile, demand-side
pressures still remain fairly modest. However, some inflation risks
are also still present from exchange-rate developments, given the
wide external deficit.
From: A. Papazian
BYLINE: Venla Sipila
World Markets Research Centre
Global Insight
October 13, 2010
The Central Bank of Armenia (CBA) has opted to retain its refinancing
interest rate unchanged at 7.25% in September, Reuters reports. This
was the fifth consecutive month that a similar decision was taken,
following a tightening cycle (seeArmenia: 9 June 2010:). The decision
was taken as the latest consumer price figures from the Armenian
Statistical Service show that inflation in September reached 8.6%
year-on-year (y/y). This result marks moderation from the August rate
of 9.6% y/y, but still indicates inflation far above the CBA's target
rate of 4% +/- 1.5 percentage points. In month-on-month (m/m) terms,
prices fell by 0.2% in September. The Bank stated that, although
external inflation pressures remained notable, domestic inflation
risks had actually started to ease. Indeed, the annual growth in
consumer prices was driven by a sharp 12.7% y/y gain in the cost
of food, while prices of non-price goods and services increased by
clearly more moderate rates of 6.1% y/y and 5.2% y/y.
Significance:The Armenian economy is currently recovering from an
extremely severe recession, and the monetary officials are seeking
to do all they can order to support economic activity. The central
bank hopes that a lower refinancing rate will in turn encourage bank
lending. In practice, this channel is still relatively weak, given
the undeveloped financial sector and the high degree of dollarisation.
While not only external, given that Armenian agricultural output
has also been very poor this year, the recent spike in food prices
indeed reflects supply side price pressures, and the impact from this
on inflation is likely to ease going forward. Meanwhile, demand-side
pressures still remain fairly modest. However, some inflation risks
are also still present from exchange-rate developments, given the
wide external deficit.
From: A. Papazian