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Strengthening of armenian dram prompted by regulator’s decision to increase reserve requirement for foreign currency

YEREVAN, December 20. / ARKA /. The strengthening of Armenian currency, the dram, over the last two days against US Dollar and euro should be reviewed in the context of measures taken by the Central Bank to stabilize the tension in the financial market that saw a dramatic increase of the US Dollar and euro against dram.

One of those measures was a Central Bank decision taken on December 17 to increase the reserve requirements for commercial banks in foreign currency from 12% to 24%. The reserve requirement for the national currency did not change staying at 2%.

Prior to this decision, the minimum amount of required reserves for the Armenian banks was 12%, 9% of which were to be reserved in drams and 3% in US dollars.

Reserve requirement is regarded as a most successful tool of regulatory influence on monetary sphere. Thanks to it, the regulator solves simultaneously two tasks: regulates the amount of money and the risks of commercial banks.

On December 18, immediately after the entry into force of the above decision of the Central Bank, the exchange rate of US Dollar slashed by 30.2 points to 497 drams. The downward trend continued and on December 20 one USD traded at 464.57 drams.

To stabilize the situation in the currency market and curb speculative currency trading the Central Bank had earlier upped the Lombard repo rate from 10.25% to 21% on December 3 and on December 8 began auctioning fixed amount of hard currency to local banks. From 8 to 12 December that amount was worth $6 million. The amount was then reduced to $4 million.-0-

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