YEREVAN, February 2. /ARKA/. In January, Armenia’s financial system evolved within the macroeconomic and monetary-credit frameworks previously established. The monetary policy adhered to the parameters set for late 2025, the banking sector continued to enhance credit intermediation, and debt policy remained a priority for financial authorities and investors.
The capital market and foreign exchange sector functioned under conditions of institutional stability, supported by a substantial level of international reserves.
1. Monetary Policy
The inflation context entering 2026 was formed by December data: the annual inflation rate for 2025 was estimated at 3.3%, with monthly inflation at 1.2%. This situation indicates that price dynamics were maintained close to targeted parameters, thereby enhancing the significance of the interest rate channel in conveying monetary policy decisions to loan and deposit rates, as well as the cost of domestic debt.
Considering that the refinancing rate in effect in January was 6.50%, established by the Central Bank of Armenia on December 16, 2025, the monetary policy guidelines for January were shaped not primarily by new decisions but rather by the reinforcement of the December parameters and a focus on comparing inflation indicators with the trends in domestic demand and lending, which sustained a clear “corridor” of expectations for short-term financial conditions among market participants.
2. Banking Sector
The banking sector commenced January with a broadened credit base: as of December 31, 2025, the loan portfolio of the banking system reached AMD 7.7 trillion, reflecting a 22.66% increase compared to the same timeframe last year. From a systemic dynamics viewpoint, this may bolster the banks’ role as the primary conduit for financial intermediation and heighten the significance of monitoring portfolio quality and concentrations by lending type.
The financial outcome for the sector in 2025 demonstrated the banking system’s capacity to generate profits amidst expanding operations: the net profit for the banking system totaled AMD 421.3 billion (a year-on-year increase of 16.01%). For the system, this could signify the maintenance of internal capital replenishment sources, which is crucial considering the growth of the loan portfolio and sustainability requirements. Regulatory indications in January continued to publicly underscore the importance of capital buffer adequacy and risk management as fundamental components of financial stability, including a focus on macroprudential readiness in light of elevated credit growth rates.
3. Public Debt and Debt Sustainability
In January, the focus of financial authorities and the market was directed towards the parameters of Armenia’s public debt and its significance in the fiscal framework for 2026. Finance Minister Vahe Hovhannisyan highlighted that the current trajectory of public debt remains within the boundaries of the debt sustainability framework and does not surpass the targets established in the medium-term fiscal strategy. The authorities reiterated that borrowing is primarily regarded as a mechanism for stabilizing the budget cycle and funding priority expenditures, rather than as a catalyst for procyclical pressure.
International financial institutions also acknowledged in their evaluations that the level of debt burden is acceptable and the liability structure is manageable. Specifically, representatives from the IMF and the World Bank pointed out that the combination of a moderate deficit, access to both domestic and foreign capital markets, along with the availability of foreign exchange reserves, establishes a sustainable external and fiscal framework for Armenia. They further stressed the necessity of upholding expenditure discipline and ensuring the predictability of debt policy. For the financial system as a whole, such indicators can be interpreted as a decrease in uncertainty concerning the fiscal aspect: in January, government debt was perceived by the market not as a source of additional risk, but rather as a fundamental component of the macroeconomic equilibrium.
4. Armenian Eurobonds and the External Debt Profile
Armenian Eurobonds have remained a significant focus during January, continuing to act as a crucial indicator of the external perception of sovereign risk. Statements made by Finance Minister Vahe Hovhannisyan suggest that Eurobonds are a vital component of Armenia’s diversified borrowing framework, aiding in maintaining Armenia’s presence in international capital markets and establishing benchmark yields.
According to financial authorities, the current trends in yields and demand for Armenian Eurobonds are influenced by a mix of domestic macroeconomic factors and external market conditions. It was highlighted that the government does not consider Eurobonds as a regular funding tool, but instead utilizes them as part of a cautious strategy for managing the maturity profile and currency composition of debt.
For the financial system, the existence of outstanding Eurobonds may hold institutional importance: they provide an external reference for evaluating sovereign risk, act as a benchmark for corporate issuers, and enhance the domestic government bond market.
5. Foreign Exchange Market and International Reserves
In January, the foreign exchange market exhibited a degree of stability in exchange rates, remaining within a narrow range for major currencies. The Central Bank of Armenia reported that the US dollar predominantly fluctuated between 379 and 382 drams during the month, with similar trends observed for the euro and ruble, all within the bounds of market volatility.
International reserves, which are crucial for external stability, commenced 2026 at a robust level: gross international reserves as of December 2025 reached $5,086.3 million (compared to $4,609.9 million in November), a figure that the World Bank also assessed as sufficient for 4.1 months of import coverage in its analysis. This situation may indicate a substantial external liquidity buffer for the system, enhancing its capacity to mitigate external shocks via the reserve channel. Alongside the framework of monetary policy interest rates, this contributed to the predictability of the currency landscape: with stable expectations and ample reserves, exchange rate volatility was kept in check, thereby minimizing the risk of currency position revaluation for banks and the corporate sector.
Summary
January 2026 can be viewed as a period of equilibrium for Armenia’s financial system: monetary conditions were influenced by the ongoing impact of the December refinancing rate decision on financial prices, with inflation remaining near the target.
The banking sector sustained an increased lending scale, bolstered by profitability and capital reserves, indicating a phase of adjustment between growth rates and risk management at the systemic level. Concurrently, the government debt market functioned within the parameters of the annual borrowing plan, enhancing the role of the internal yield curve as a fundamental reference for the cost of money in the economy.-0-
