SWITCH IN ARMENIA’S CURRENCY POLICY NECESSARY

ARKA
March 4, 2009

YEREVAN, March 4. /ARKA/. A sharp return to the floating rate in
Armenia was necessary for preventing any expectation of the devaluation
of the Armenian national currency, stated Vice-Chairman of the Central
Bank of Armenia (CBA) Vache Gabrielyan.

Yesterday morning the CBA Board took into account the gradually
worsening trade conditions amid the present global economic and
financial crisis, as well as lower capital flow rates, and decided to
restrict its interventions in the currency market thereby reverting
to its floating exchange rate policy. CBA experts believe that the
USD average exchange rate will be 360-380 AMD/$1 this year.

"A smoother process would not be effective, but much more expensive,"
Gabrielyan told reporters at the Novosti press center.

>From the macroeconomic point of view, neither the RA Government nor
the CBA have ever announced a transition to a fixed rate.

"However, we stated that the exchange rate was temporarily fixed
because of financial stability problems," Gabrielyan said.

He also stated that the policy of gradual changes, specifically,
a gradual return to a floating rate, being implemented in Russia
has a number of shortcomings. The most serious of them is that huge
expenses do not bring about any changes in inflationary expectations.

"The experience of the countries practicing smoother transitions,
particularly=2 0Georgia, Kazakhstan, Russia, Belarus, Azerbaijan and
Uzbekistan, proves that deflationary and inflationary expectations
fail to be dispelled. On the other hand, the countries that resort to
relatively sharper returns, these expectations are promptly dispelled,"
Gabrileyan said.

He reported that it was last autumn that essential pressure on the
exchange rates was first felt in Armenia. One of the causes was
the military operations in Georgia, which prevented the supply of
sufficient quantity of goods to Armenia.

"If we had got sharp exchange fluctuations after that, we would have
serious problems with financial stability," he said.

Gabrielyan also said that, considering the results of the February
monitoring, the CBA is sure of the sufficient stability and liquidity
of the banking system, and nothing threatens it.

"It is the reason why the return to the floating rate is possible at
the moment," Gabrielyan said.