YEREVAN, March 29. /ARKA/. Armenia’s Central Bank Board at a meeting on Tuesday decided to cut the refinancing rate by 0.25 percentage points, setting it at 8.25%.
The regulator said a 1.4% deflation was registered in February 2016 against a 0.1% deflation registered in 2015 February. As a result, the 12-month inflation continued to decline making minus 1.7% at the end of the month.
According to the Central Bank, the deflation was prompted by lower prices of imported food products against the background of slow growth of the global economy and deflationary environment in the world commodity markets.
The Central Bank believes that in the coming months the deflationary impact on domestic prices, transmitted from the external sector will maintain.
The Central Bank Board said compared with the first two months of 2015 the economic activity index in 2016 January and February slightly exceeded expectations, reaching 4.7%. This was mainly contributed by high growth in the industry and services. However, despite the Central Bank’s and the government’s policy of stimulating the domestic demand is still at a low level.
At the same time, at the beginning of the year there was a significant increase in exports and foreign demand for domestic goods and services, which was fully offset by the impact of the weak domestic demand on the aggregate demand.
Consequently, the low inflation is largely the result of deflationary effects of the international markets of basic food commodities, which contributes to maintaining the solvency of income, cost reduction of organizations and the gradual reduction in inflation expectations.
“In these circumstances, the Central Bank Board believes that the sharp weakening of monetary conditions at the end of last year is largely sufficient for neutralization of deflationary pressures in the course of the year. Therefore, at present the CB Board considers it appropriate to continue the gradual easing of monetary conditions, as a result of which, starting from the second half of this year, the inflation environment will gradually expand to reach the 12-month target band,” the regulator said.
It said also in the absence of anticipated economic developments and other manifestations of the external and internal risks the Central Bank Board will continue easing the monetary conditions in the future.
The last time the CEB revised its benchmark rate was on February 16, 2016 when it was lowered by 0.25 p.p. to 8.5%. -0-
