CENTRAL BANK OF ARMENIA LIFTS REFINANCING RATE FURTHER
by Venla Sipila
Global Insight
March 5, 2008
The Board of the Central Bank of Armenia (CBA) yesterday decided to
increase its refinancing interest rate by 25 basis points, taking
the policy rate to 6.25%, ARKA News reports. This move follows an
increase of similar magnitude only in February, while the rate was
left stable in January. The CBA board stated that the inflation risks
highlighted in earlier projections are now starting to materialise,
and are likely to persist in the near future. In particular, the board
stressed the importance of outside factors in driving up Armenian
inflation, while also recognising that rapid increase of private
consumption adds to inflation pressure. The board concludes that as
inflation is mainly driven by external causes, the CBA’s monetary
policy aims to mitigate second-round inflationary effects and ease
inflation expectations. Annual inflation in February accelerated to
7.5%, while the CBA’s target rate has been defined at 4% with a band
of 1.5 percentage points on either side (see Armenia: 4 March 2008: ).
Significance:Armenian inflation pressure is likely to remain
considerable in the near term, as high prices of energy and goods
keep up cost pressure, at the same time as domestic demand remains
strong. Some cooling in rapid Armenian overall economic expansion
and growth of consumer demand is likely to be seen this year, but
rapid Armenian growth seems to be somewhat more persistent than
we previously thought, and demand-side inflation pressure is also
likely to persist, not least due to rising fiscal spending. Thus,
further interest rate hikes by CBA in the coming months are likely.