CBA RAISES REFINANCING INTEREST RATE TO 4.5%

Noyan Tapan
Aug 30 2006

YEREVAN, AUGUST 30, NOYAN TAPAN. At the August 29 sitting, the Central
Bank of Armenia (CBA) Board raised the repo interest rate by 0.25%
to 4.5%. This was the third step of such kind this year – in January,
the refinancing interest rate was raised from 3.5% to 4%, in late
July – to 4.25%. The CBA explains its decision by the necessity to
curb the possible high rates of inflation.

According to the CBA press service, the CBA Board takes a view that
registration of a two-digit economic growth is quite realistic this
year, but the previously indicated inflation risks have appeared
and will most probably continue. Among external environment risks,
the most notable one is an expected growth in international prices of
raw materials, oil and metals. Among domestic risks, the CBA pointed
out the decline in the agricultural sector, as a result of which the
seasonal fall in the prices of fruit and vegetables was less than
expected. At the same time, according to the same source, since 2006,
the continuous income growth has already had its effect on inflation
in such sectors as services and non-food commodities, which, by the
CBA’s estimates, will continue in the near future. The CBA Board
also attaches importance to the fact that considerable budgetary
expenditures envisaged in late 2006 will be conducive to inflation,
which will become evident in the first half of 2007.

According to the CBA, due to the above mentioned factors, inflation
within the next 12 months will exceed the maximum annual target index
of 3%. For that reason, the CBA does not rule out that it will againt
change interest rates in the coming months.