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Armenia’s central bank cuts refinancing rate by 0.25 percentage points setting it at 5.25 percent

YEREVAN, March 17. /ARKA/. Armenia’s Central Bank decided today to cut the key refinancing rate by 0.25 percentage points, setting it at 5.25%. It said in a statement that in February 2020, the 12-month inflation was 0.5%, resulting from 0.2% deflation registered against 0.6% inflation in the same span of the past year.

“The coronavirus pandemic is having a significant negative impact on the global economic growth with uncertainties in the global financial markets having jumped substantially, which is reflected in the ongoing drop in stock indices of developed countries, in the drop of ore commodities’ prices, and in the depreciation of exchange rates of developing countries’ currencies. The impact of all this on the Armenian economy is assessed as deflationary,” the Central Bank said.

According to the estimates of the Central Bank, these impacts are also expressed in a simultaneous reduction in gross supply and demand in Armenia’s economy, which has damaged especially the services sector – those of its segments which are engaged in tourism and leisure activities. According to the main scenario of the Central Bank, economic growth will slow down sufficiently in the short term, but will not affect the long-term prospects of the country’s economic potential.

‘Having considered the economic developments, the Central Bank estimates that in this situation the role of monetary policy is limited, since its tools do not have the ability to influence the growth of real economic uncertainty caused by health problems,’ the regulator said.

“Under these conditions, it is important to maintain the country’s macroeconomic stability, which will ensure the effectiveness of targeted measures being developed by the government’s economic policy,” the Central bank said.

The Central Bank believes that because of the low inflation policy implemented in recent years, inflation expectations are currently quite fixed. Therefore, based on its goal of price stability, and assessing current inflationary developments, the future impact of the global economy and the resulting uncertainty, the Central Bank Board considers it appropriate to reduce the refinancing rate by 0.25 percentage points. As a result, according to the main scenario, inflation will remain at a relatively low level in the coming months, gradually approaching the target indicator.

The Central Bank said it continues to monitors economic and financial markets on a daily basis, considering various alternative scenarios and is ready to respond to any development of the situation to ensure price stability in Armenia.

The 2020 government budget has the economic growth at 4.9%, the inflation projection is 4% (± 1.5%). -0

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