ARMENIAN DRAM AGAIN WEAKENING
Emil Danielyan

Armenialiberty.org
Sept 23 2009

Armenia — A statue symbolizing the national currency, the dram,
outside the Central Bank building in Yerevan.

The dram has lost almost 3 percent and 6 percent of its nominal value
against the U.S. dollar and the euro respectively since September 1,
falling below a target band set by the authorities in March. Much of
the losses occurred over the past week.

The dollar bought 385.5 drams at the close of trading at Yerevan’s
NASDAQ OMX stock exchange on Wednesday, up from 381.75 drams registered
during the previous trading session on Friday. The Central Bank
of Armenia (CBA) is by and large avoiding heavy intervention in the
local currency market, a radical change from its earlier exchange rate
policy strongly criticized by opposition politicians and economists
critical of the government.

The CBA spent an estimated $700 million of the country’s hard currency
reserves on keeping the dram’s value virtually unchanged from last
October through the end of February before allowing its nearly 20
percent devaluation on March 3. The measure was a necessary condition
for the release of a $540 million stand-by loan by the International
Monetary Fund (IMF).

Most of that loan, which the IMF increased to $823 million in June,
is to be used by the CBA for preventing further exchange rate
fluctuations. The bank forecast in March that the dram’s average
exchange rate will vary from 360 to 380 per dollar this year.

CBA officials are now downplaying the significance of the Armenian
currency’s renewed depreciation, saying that its average exchange
rate for the whole year will remain close to 360 per dollar. "We
do not expect serious fluctuations," bank’s deputy governor, Vache
Gabrielian, told the "Hayots Ashkhar" daily last week.

According to Gabrielian, the dram’s weakening is primarily caused by
currency speculation. "There are some market players who are cashing
in on the dollar’s strengthening [in Armenia,]" he said without
naming anyone.

Another newspaper, "Kapital," quoted Gabrielian as saying that local
commercial banks have accumulated "a large amount of liquidity"
that puts the dram under growing pressure. But he insisted that the
CBA will not resort to massive dollar injections to shore up the
national currency.

Another possible factor behind the weaker dram is a continuing easing
of the authorities’ monetary policy which is aimed at stimulating
Armenia’s recession-hit economy. The CBA cut its refinancing rate
by an additional 50 basis points to 5 percent in August and early
September. The benchmark rate stood at 7.75 percent in early March.

From: Emil Lazarian | Ararat NewsPress