Global Insight
December 6, 2007
Central Bank of Armenia Increases Refinancing Rate as Inflation
Accelerates Further in November
Venla Sipila
The Central Bank of Armenia (CBA) in its December meeting moved to
lift its annual refinancing rate by 50 basis points 5.75%, ARKA News
reports. The Board of the CBA took the interest rate decision in
order to control inflation pressures and to mitigate inflation
expectations, after similar concerns had led to 25 basis point
increases in both October and in September. At the same time, the
banking interest rate was lowered from 12% to 11%. The interest rate
revisions followed publication of latest inflation data by the
Armenian National Statistical Office, which showed that consumer
prices in Armenia in November increased by 6.8% year-on-year (y/y),
the inflation rate thus further accelerating after posting 5.7% y/y
in October.
Specifically, food prices surged by 10.4% y/y, while the cost of
non-food goods rose by a relatively modest rate of 1.1% and prices of
services gained 3.6% y/y. Measured month-on-month (m/m), consumer
prices increased by 2.1% in November, mainly due to a rise of 3% in
food product prices from October. The cumulative growth of consumer
prices over the January-November period amounted to 5.1% and the y/y
inflation rate for the 11-month period came in at 4.2%.
Significance:The CBA continued to express concern over both external
and internal inflation sources. While demand is strong in the rapidly
expanding economy, inflation is also pushed upwards from the cost
side due to high prices of commodities and food. The CBA is
implementing inflation-targeting policy, which has proved successful,
even if implying the strong appreciation of the dram exchange rate,
in conditions of strong foreign remittance and FDI inflows.