YEREVAN, November 4. /ARКА/. Martin Galstyan, the head of the Central Bank of Armenia, provided an explanation for the decision to keep the refinancing rate steady after the regulator held it at 6.75% for the sixth consecutive time.
“We are observing that the risks associated with scenarios A and B are being mitigated. In scenario B, we evaluated the potential for a significant drop in real estate prices. We are witnessing that this decline is occurring gradually, with prices adjusting slowly. The government is maintaining its fiscal discipline: the state budget deficit is being reduced to 4.5%. However, we need to remain cautious about the risks posed by scenario A,” Galstyan stated.
He mentioned that in the third quarter of 2025, there are still risks of a further slowdown in demand growth within the global economy and in Armenia’s key partner countries, while in the United States, inflation is expected to accelerate concurrently. There is ongoing uncertainty regarding US trade policy and its macroeconomic effects.
“In the medium term, there is significant uncertainty surrounding the increase in long-term interest rates due to the rising US public debt. The sustained growth in consumption in the US continues to support relatively high economic growth and an inflationary climate,” Galstyan remarked.
Nevertheless, he pointed out that the risks of a potential correction in financial asset prices and a decline in the US labor market could adversely affect medium-term growth prospects. Concurrently, risks to medium-term growth and diminishing demand in other crucial partner countries of Armenia are gradually becoming evident.
“Global oil prices are on a downward trend, and the increase in global food prices has somewhat decelerated. However, geopolitical uncertainties and tensions in international trade relations persist as a source of inflation volatility in the global economy. In this context, considering the risks of weak demand on one side and high inflation on the other, central banks in leading nations are likely to continue to maintain or gradually relax tight monetary policies in the near future,” Galstyan concluded.
He mentioned that economic activity in Armenia saw an increase during the third quarter of 2025. This robust economic performance is primarily fueled by significant growth in the construction and services sectors, along with the impact of certain short-term non-structural factors.
“Following a slowdown observed in 2024 and the initial quarter of 2025, there was a rise in external demand for local goods and services during the second and third quarters of 2025. However, there remains uncertainty regarding future domestic demand trends. In this context, the effect of demand on inflation is still viewed as neutral, with current inflation trends being largely influenced by specific supply-side factors,” Galstyan stated.
He pointed out that wage increases, inflation in services marked by rigid pricing, and inflation expectations are generally exhibiting stabilizing patterns. Nonetheless, there are risks associated with a potential rise in domestic demand due to fiscal policies in the short to medium term.
“Considering the discussed risks and uncertainties, the Central Bank Board evaluated Type A scenarios, which encompass a possible rise in global neutral interest rates as a result of fiscal policy impacts, as well as the emergence of excess demand conditions within the domestic economy, necessitating a higher interest rate path than what the market anticipates,” Galstyan remarked.
Conversely, he noted that the Board also examined Type B scenarios, which include the risks associated with the development and intensification of a weak demand environment in the economy, particularly in light of the potential for a slowdown in global economic growth and a gradual adjustment in real estate prices, suggesting a lower interest rate trajectory than market expectations.
“As a result, emphasizing the need to manage the macroeconomic consequences arising from Type A scenarios, the Central Bank Board decided to leave the refinancing rate unchanged for the current period. The Board will continue to monitor economic development scenarios and is prepared to take appropriate measures to ensure the target inflation rate of 3% and price stability in the medium term,” Galstyan said.-0-
