YEREVAN, March 18. /ARKA/. The likelihood of the Central Bank of Armenia switching to tougher monetary rhetoric and potentially raising the rate in the short term may increase, Rafael Mkrtchyan, Head of Corporate Finance at Freedom Broker Armenia, told ARKA news agency.
On March 17, the Board of the Central Bank of Armenia maintained the refinancing rate at 6.5% for the third consecutive time. The Lombard repo rate and the cash attraction rate also remained unchanged at 8.0% and 5.0%.
Mkrtchyan noted that the regulator’s decision to maintain the rate was not a surprise to the market and reflects the Central Bank’s conservative approach.
“The pause allows us to assess whether the recent surge in inflation above 4% is a temporary shock, including against the backdrop of strengthening supply factors, or a sustainable trend,” he said.
According to the expert, for the local fixed-income market, the Central Bank’s conservative rate means greater predictability and, all other things being equal, remains a moderately positive factor for demand in the medium and long term. However, he noted that rising prices in recent months are constraining the potential for real returns in the short term.
At the same time, Mkrtchyan believes that the balance of short-term macroeconomic risks has shifted toward inflation amid the escalation in the Middle East, rising global energy prices, and disruptions in global supply chains.
For example, the price of Brent crude oil has risen to approximately $100 per barrel.
“If this imported inflation shock doesn’t subside and continues to become entrenched in domestic prices, then, in our view, the likelihood of the Central Bank’s monetary policy reversal toward more stringent rhetoric and a potential rate hike in the short term will increase,” Mkrtchyan stated.
