ARMENIA STILL UNDER EXTERNAL INFLATIONARY PRESSURE
ARKA
June 19, 2009
YEREVAN, June 19. /ARKA/. Armenia is still under weak inflationary
pressure despite the May rise in the world prices for a number of
raw materials and food products.
At its sitting, the Board of the Central Bank of Armenia (CBA) pointed
out that the mounting global financial and economic crisis has made the
economic situation in Armenia a little worse – an economic decline of
9.7% has been recorded over the last year, which exceeded the target.
The reason for the decline is smaller-scale construction work
funded by organizations as a result of cut down investments and,
therefore, reduced output of building materials. The chemical and
mining industries, which proved to be more sensitive to the crisis,
reduced output as well.
Downtrends in economic crediting still continue. However, the CBA
continues its expansionary policy to encourage banks to credit the
economy amid the crisis. Specifically, long-and short-term REPOs are
provided to banks. The CBA is also actively involved in the secondary
securities market of Armenia.
The CBA Board repeatedly pointed out extremely dim prospects of the
macro-environment, which accounts for further inflation expectations
in the country.
The CBA Board members agreed that the present lower-inflation risks
are higher than the higher-inflation risks as the GDP decline rates
exceed the targets, and any risks of higher-than-targeted i nflation
rates as a result of the exchange rate reaching its optimal level –
which level is determined by key economic indicators – are unlikely.
The above caused the CBA Board to reduce the annual refinancing rates
by 0.25% down to 6%. The mounting crisis makes moderation of the
monetary policy advisable, which proceeds from effective comparison
of stable prices and economic activity. The interest rates on deposits
and collateral loans set at 3% and 9% respectively.
The CBA Board considered it necessary to reduce the refinancing rate
and continue the expansion, which is presently the optimal way of
accomplishing the tasks set.