Armenian central bank explains why it raised key rate by 0.5 p.p.

YEREVAN, August 18, /ARKA/ Armenia’s Central Bank said the August 3 decision to raise the refinancing rate by 0.5 percentage points, not by 0.25 percentage points as suggested by some members of the Executive Board and setting it at 7% was backed by the overwhelming majority of the Board, who spoke in favor of tightening the monetary conditions because of higher-than-expected inflationary impacts expected from the external sector on the wave of more stimulating environment for global demand, higher growth in international prices and freight transport tariffs as well as insufficient and delayed price response to the devaluation of the exchange rate of the national currency.
According to the regulator, the decision to raise the key rate by 0.5 p.p. emphasizes the rapid neutralization of the stimulating monetary position and the need to direct the interest rate towards the medium-term equilibrium level in the future.
At the same time, while reaffirming the consistency of the policy to neutralize the risks of accelerating inflation expectations along with the increase in domestic demand, the Executive Board considered the need for a possible tightening of monetary conditions in the future. In such conditions, the 12-month inflation is predicted to remain at a high level until the end of the year, and then gradually decrease and stabilize around the target of 4%.
According to the National Statistical Committee, in July 2021 the 12-month consumer inflation was 8.2%. -0-