FLOATING EXCHANGE RATE WILL PROMOTE ECONOMIC GROWTH IN ARMENIA, CBA DEPUTY CHAIRMAN SAYS

Noyan Tapan

M arch 4, 2009

YEREVAN, MARCH 4, NOYAN TAPAN. By returning to a floating exchange
rate policy on March 3, the Central Bank of Armenia (CBA), on the
whole, paid attention to economic growth. In the opinion of the CBA,
the floating exchange rate will become a stimulus for economic growth,
and Armenia will have an economic growth of several percents in 2009,
whereas the IMF has forecast an economic decline, the deputy chairman
of the CBA Vache Gabrielian stated at the March 4 press conference.

To recap, when the CBA adopted an inflation targeting policy,
it was announced that it was done due to the necessity to protect
the interests of those who receive their incomes in Armenian drams,
that is, who make the majority of the Armenian population. However,
according to the CBA, on March 3 the exchange rate was 372.11 drams a
dollar, exceeding the exchange rate of the previous day by 66.36 drams,
as a result of which consumer prices, in particular, prices of imported
foodstuffs and fuel for vehicles have risen by 20-30%. In response
to the question: "What will be the price of shifting to a floating
exchange rate in terms of forecasting expectations about promotion
of exports and investments and creation of jobs?", V. Gabrielian
replied that perhaps it would not be correct to connect the problem
of protecting the interests of those who receive incomes in drams
(the problem in this wording) with inflation targeting.

He added that by the law, the CBA has to ensure price stability which
presupposes a low and stable level of inflation which must be expressed
in drams. The CBA does not calculate a price growth in dollars because
the dram is the national currency, and inflation is calculated by the
consumer basket in drams. In this sense, inflation targeting has not
made any change. "We will continue calculating inflation in drams. In
any case, regardless of whether our policy will be conducted by means
of monetary aggregates or inflation targeting, it will be aimed at
combating the inflation in drams," the CBA official stated.

In his words, "naturally when the exchange rate of the dram against
the dollar has risen, it is more difficult for those who receive
their incomes in drams, but all our calculations of inflation are
related to the consumer basket in drams".

It should be mentioned that the IMF and the World Bank have expressed
their postive opinion about the CBA’s return to a floating exchange
rate regime.