ARMENIA’S CENTRAL BANK LETS CURRENCY FLOAT

Armenian Public TV
March 3 2009

[Presenter] The country’s Central Bank decided in an extraordinary
session today to return to the floating rate policy. From now on
the Central Bank will carry out interventions in the currency market
only in case of sudden fluctuations. Why has this decision been made
now? The Central Bank said that in the past two months commercial
banks managed to accumulate great dollar reserves; the system does
not have any liquidity problem, is financially stable and it is the
right time to shift to the floating dram policy [the dram is Armenia’s
national currency].

[Correspondent speaking over video of a news conference] The Central
Bank is restricting its interventions in the currency market, the
entity announced this morning. The [Central Bank’s] Board summed up
the system’s current indices in its session today; the capital of
commercial banks has increased by 40bn drams [about 108m dollars]
starting from the beginning of the crisis up to now; there is no
problem of liquidity at all. In the recent period, due to sales of
dollars by the Central Bank in the Nasdaq OMX Armenia stock market,
the amount of foreign currency in Armenia’s commercial banks has
reached 700m dollars. This is a sufficient index even if the country’s
demand is at its greatest level. Nothing threatens the stability of
the financial system. After this analysis the Central Bank decided
to return to the floating exchange rate policy.

[Artur Javadyan, the chairman of the Central Bank speaking at
the bank’s session] According to assessments by the Central Bank’s
specialists, which are based on several models and methods well-known
in academic circles, which are used by central banks of a few other
countries and have been localized for Armenia, the equilibrium average
rate is expected to be 360-380 drams per dollar.

[Correspondent speaking over video of bureaux de change in streets]
Exchange rate offices in the capital [Yerevan] reacted to the Central
Bank’s statement in a few minutes. The highest level is 380 [drams
per dollar]; the market will be regulated soon, when commercial banks
start selling their accumulated reserves of the currency. The Central
Bank explains its decision by weakening the dram not gradually, but
abruptly, by market expectations. If the devaluation was carried out
slowly, according to the Russian scenario, it would have been hard to
restrain speculations. At this moment it is known that an exchange
rate greater than 360-380 cannot exist in our market. The country’s
financiers also consider it important that there was no outflow of
money from Armenia and that’s why dram deposits were replaced by
dollar deposits, but did not leave the banking system. The index of
the gross foreign reserves did not decrease either. At present it is
1.2bn dollars. Banks that provided loans in dollars will benefit,
and those who took drams will lose. This will also influence the
population in the form of price hikes – the price of goods purchased
with dollars will increase in the domestic market.

[Javadyan] Due to some factors, the inflation will reach about 8-9
per cent at the end of the year, this is also as forecast by the
International Monetary Fund.