Armenia holds rate, still expects easy policy for long time

13th March 2019 Off By binary

By CentralBankNews.info
     Armenia’s central bank left its benchmark refinancing rate steady at 5.75 percent, reiterating its guidance from January that it expects to maintain easy monetary conditions for a long period as inflation is expected to remain below the target in coming months.
     The Central Bank of Armenia (CBA), which cut its rate in January by 25 basis points, its first rate cut since February 2017, added the risks of inflation staying below its target still dominate and may require an appropriate monetary policy response to ensure price stability.
      The CBA, which will publish its first quarter monetary policy program on March 26, added with the global economy slowing down amid weakening global demand, and the temporary delay in adjustment of monetary conditions by major central banks, inflationary pressures from the external side are not expected.
     Internally, fiscal policy is continuing to deter domestic demand but economic growth in the fourth quarter of 2018 was higher than expected, mainly due to growth in private consumption, and economic activity at the beginning of this year remained high at a rate of 6.1 percent, CBA said.
     Armenia’s inflation rate rose to 1.9 percent in February from 0.8 percent in January, below its 4.0 percent target, while gross domestic product grew 3.4 percent year-on-year in the fourth quarter of last year, up from 2.5 percent in the third quarter.
     Armenia’s dram has weakened slightly this year though it has risen in the last week. Today the dram was trading at 488.7 to the U.S. dollar, down 1 percent this year.
     Last month Armenia and International Monetary Fund (IMF) staff agreed on a 3-year precautionary, $250 million, stand-by arrangement that will be considered by the IMF board in May. The agreement aims to support the government’s reforms and strengthen the country’s resilience against external shocks.
     In its statement from Feb. 26, the IMF said Armenia’s economy has been robust but growth moderated to more sustainable levels last year due to a slowdown in its trading partners.
     This year growth is expected to ease to about 4.5 percent due to a weaker global environment and copper prices and then remain in the 4-5 percent range in the medium term.
     Inflation is expected to gradually converge to CBA’s target over the next 2 years, the current account deficit is expected to gradually narrow to around 5 percent of GDP and the fiscal deficit is projected at around 2.5 percent of GDP this year and 2 percent in the medium term.
     The IMF added the current monetary policy stance was appropriate and it welcomed authorities’ intention to maintain the existing flexible exchange rate regime.

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