YEREVAN, April 10. /ARKA/. Armenia’s Central Bank said today that since April 9 it has basically two main goals: to ensure price and financial system’s stability. According to amendments and additions approved by the parliament last December to the Law on the Central Bank in the second and final reading, the regulator’s major functions are to ensure financial stability, while the monetary policy will be determined not for 12 months, but for three years, which will make it more predictable.
The Central Bank said the latest global financial crises showed that in order to ensure macroeconomic stability, central banks, in parallel to ensuring price stability, should attach also importance to ensuring financial stability.
It said since then many countries with low inflation and moderate economic growth have been building in parallel highly fluctuating financial cycles that violate the macroeconomic balance. To ensure a general equilibrium in the economy, the regulation of the financial segment in parallel with the regulation of business segments has become a challenge for national banks in many countries around the world.
The problem is that on the one hand, a weak financial system causes difficulties in implementing an effective monetary policy and ensuring price stability; on the other hand, instability in prices causes risks in ensuring financial stability.
As a result, a number of countries decided that ensuring financial stability is the main task of central banks along with ensuring price stability.
The stability of prices is determined by the inflation indicator of the consumer basket, whose target figure is now 4%. To ensure price stability, the Central Bank of Armenia implements monetary policy through the refinancing rate.
The Central Bank characterizes financial stability as a situation where the financial system naturally performs its function as a financial intermediary without jeopardizing the current and future prospects for the development of the economy and, at the same time, is capable of withstanding negative indicators.
To ensure financial stability, Armenia’s Central Bank implements a macro-prudential policy that involves the use of appropriate instruments. It is aimed at reducing systemic risks or so-called risks that paralyze the natural activity of the financial system. Such instruments include capital and liquidity requirements, loan restrictions and other requirements. -0-
