ARMENIAN CENTRAL BANK CUTS LENDING RATE

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May 26th, 2009

YEREVAN (RFE/RL)-The Central Bank of Armenia (CBA) has significantly
cut its benchmark lending rate, citing easing inflationary pressures
and the need to shore up the crisis-hit Armenian economy.

In a statement posted on its website at the weekend, the CBA said its
governing board decided to lower the refinancing rate by 100 basis
points to 6.25 percent. The bank had already cut it by 25 basis points
in early April.

The statement argued that the latest macroeconomic trends put the
Armenian authorities on track to meet their inflationary targets for
this year. The National Statistical Service (NSS) recorded an average
inflation rate of 2.3 percent during the first four months of 2009.

According to the NSS, inflation was sharply down from the same period
of 2008 despite a surge in the cost of the key utility services
in Armenia, which took effect on April 1, and a nearly 20 percent
devaluation of the national currency, the dram, that preceded it. The
dram depreciation pushed up the prices of some basic foodstuffs
imported to the country. That led the CBA to raise the minimum cost
of borrowing by 100 basis points in early March.

Economic recession in Armenia has accelerated since then, with Gross
Domestic Product shrinking by 9.7 percent in January-April. Vache
Gabrielian, the CBA’s deputy governor, said on Monday that the bank
now expects the domestic economy to contract by 7 to 8 percent in
2009. The CBA forecast a full-year GDP drop of 5.8 percent as recently
as last week.

"In our opinion, one should not anticipate a deeper economic decline,"
Gabrielian said, speaking at a economic forum held in Yerevan. "In
all likelihood, one may anticipate an economic decline of 7-8 percent
in annual terms."

Speaking to RFE/RL, Gabrielian predicted that Armenia’s macroeconomic
performance will improve markedly in the second half of the year
because "substantial inflows will be channeled into the economy."

The official appeared to refer to hundreds of millions of dollars
in anti-crisis external loans secured by the Armenian government and
Central Bank in recent months.

In its statement, the CBA said the rate cut should also stimulate
economic activity in the country. "The Board believes that in the
existing situation it is much more effective to assist in the policy
of support for economic growth with a drastic loosening of lending
terms," it said.

From: Emil Lazarian | Ararat NewsPress