DRAM VALUATION GROWS DEEPER
Vasak Tarposhyan

Hayots Ashkharh Daily
Oct 23 2007
Armenia

After the stabilization recorded in summer, during the last month
the process of the valuation of dram resumed.

Though it deteriorated for a while, when it was 342 against dollar,
nevertheless it lasted for some days, immediately after which the
strengthening of dram resumed. This tendency grew deeper particularly
during the recent week and at present the exchange rate of dram against
dollar fluctuates between 320-325. That is to say in one week national
currency became stronger by 13 drams. For a long period of time it
was stable (337-338 drams).

We should underscore that such an exchange rate of dollar has been
recorded in Armenia in 1994, 10 months after putting the national
currency into circulation.

Besides dollar, dram has been valuated against other currencies as
well. This means the process of strengthening the national currency
is on.

The regular stage of the valuation of dram started after the abrupt
growth of the prices of certain goods.

Similar manifestations created serious risks in terms of the provision
of the anticipated level of the growth of prices. Moreover because the
growth of price coming from external factors are still preserved. And
there are very little chances to stop this tendency in Armenia. The
law on the protection of economic competition doesn’t work and this
consequently creates serious problems in the provision of stability
of prices.

Perhaps it was not accidental that in October Central Bank had to
increase the refinancing interest rate to alleviate the existing
risks of the growth of prices. After adopting the policy of planning
the growth of prices, the change of refinancing interest rate is a
so-called influencing factor on the financial market. By this the
Central Bank gives certain signals to the participants of the market.

In this case the increase of the refinancing interest rate means
increase of the price of dram.

In parallel with this shares were released two times, last week.

Thus as we know the Central Bank involved additional sum of dram. The
reduction of the sum of dram, particularly in the condition of the
increase of currency means, naturally leads to the strengthening of
the national currency. Whereas unlike the refinancing interest rate,
the influence of releasing shares, on the currency market is expressed
in a very short period of time.

On the other hand, but for the tendencies of the strengthening of dram
during the recent days, the situation in the foreign exchange market is
rather quiet. Usually in such cases the deals in the foreign exchange
market liven up. Whereas from October 15-21 only 4,4 million dollars’
sale – purchase was realized here. During some bargaining processes the
deals made up 300 – 350 thousand dollars, a very low index. Similar
passiveness is a very rare phenomenon in this market. During those
days the average deals in the foreign exchange market made up 600
thousand dollars.

The deals of the foreign exchange market become active particularly
when the central Bank partakes in the bargaining process. That is
to say, during the pervious days Central Bank manifested a neutral
stance towards the market. What was it that led to the strengthening of
dram? It is not a secret that in the condition of a big flow of dollar
and a certain sum of dram time after time Central Bank involves dollar
from the market, not to allow further strengthening of dram. Though
during the recent days dram became stronger with 9-10 units Central
Bank preferred not to interfere in the market processes.

The foreign exchange market became active on October 22. That day the
volume of sale and purchase was almost two times more (8 million 150
thousand drams).

Of course even this abrupt interference didn’t lead to stopping the
valuation of dram, it continued on October 23.

Anyway the activeness of the foreign exchange market will preserve
during the coming two three days, after which the exchange rate of
dram will become stable.