CENTRAL BANK OF ARMENIA CUTS INTEREST RATE AS INFLATION DECELERATES FURTHER IN NOVEMBER
Venla Sipila
World Markets Research Centre
December 3, 2008
According to the latest figures from the Armenian National Statistical
Service quoted by ARKA News, consumer prices in the country increased
by 6.6% year-on-year (y/y) in November, after gaining 8.6% y/y in
October, and by an average rate of over 11% during the preceding
three months. Food price inflation moderated to 5.6% y/y, while
growth of non-food good prices eased to 3.4% y/y. Conversely,
the rise in service prices somewhat accelerated from October,
registering a rate of 11.0% y/y in November. Measured month-on-month
(m/m), Armenian consumer prices on the whole edged up by 0.1%, after
rising by 0.7% m/m October and by 0.5% m/m in September. Prices of
non-food goods fell in monthly comparison, as did food prices, even
if only marginally. Separately, AFX Asia reports that the Central
Bank of Armenia (CBA) yesterday announced a 50 basis point cut in
its refinancing rate, taking the policy rate to 7.25%. Before this,
the CBA council had opted to keep the policy rate stable for two
months, following eight successive 25-basis-point increases monthly,
the latest of these having been implemented in September (see Armenia:
3 September 2008: ). The decision to lower the rate in December was
taken in order to boost economic growth.
After strong inflation pressure had driven the interest rate rises
earlier in the year, the CBA now sees monetary easing as appropriate
as prices are falling in global markets. Previously, the CBA did
not embark on a monetary easing path even as global food and energy
prices were falling, because this easing was not immediately filtered
to domestic prices.
Significance:The Armenian interest rate does not yet function as
an effective policy tool, and mainly reflects the CBA’s inflation
expectations. While the considerable upward price pressure from both
cost and demand sides earlier in the year has been strong enough to
lift this year’s inflation rate above the targeted 4%, the monetary
officials’ expectations of moderating inflation pressure are warranted
now that international commodity prices have sharply decreased and
the global growth outlook turns ever gloomier. Thus, further interest
rate cuts are to be expected in the near term.