YEREVAN, September 15. /ARKA/. The decision of the Board of the Central Bank of Armenia to raise the refinancing rate was primarily due to excessive demand factors, Central Bank Governor Martin Galstyan stated in response to a question from ARKA news agency.
A Difficult Choice
On September 15, the Board of the Central Bank of Armenia decided to raise the monetary policy rate by 0.25 percentage points to 6.75%.
According to the regulator’s statement, the Board considered two types of scenarios. Type A scenarios are associated with higher demand in the domestic economy, further expansion of external demand, and risks of rising inflation expectations, which require a higher trajectory of the monetary policy rate compared to market expectations.
Type B scenarios are associated with the prospect of a slowdown in global economic growth, the emergence of deflationary risks due to export restrictions to Russia, and a fundamental decline in Armenia’s country risk premium, which imply a lower monetary policy rate trajectory compared to market expectations.
The decision to raise the refinancing rate was made taking into account the need to manage the macroeconomic consequences arising from Type A scenarios.
“The Central Bank Council meeting was quite difficult, as the votes were split 4-4. Four Council members believed that the rate should be left unchanged. Four Council members, including myself, believed that the rate should be raised. In other words, the decision to raise the rate was quite complex, preceded by very lengthy discussions,” Galstyan noted at a press conference on Tuesday.
Acceleration of Demand
The head of the Central Bank of Armenia recalled that inflation in June-July was driven by supply factors.
“We are now seeing a situation where both domestic demand and external demand, driven by a new wave of people arriving in Armenia, have led to a situation in which, for example, prices for services that shouldn’t change significantly and are primarily driven by demand, have once again begun to accelerate,” he explained.
Problems in the Economy Are Possible
Speaking about the conditions for the Central Bank to return to its interest rate reduction policy, Galstyan noted that for this to happen, a negative output gap must form (a situation in which the actual volume of production in the economy is lower than its potential level – ed.).
“In other words, a situation must arise in which our economic growth slows significantly, and such scenarios exist: that is, a situation may arise in which, after these long years of growth in the Republic of Armenia, certain problems arise in the economy,” he said.
According to the head of the Central Bank, if these problems arise and Type B scenarios begin to materialize—either as a result of weakening global economic growth or specifically in Armenia—the regulator will respond in the opposite direction.
Currently, as Galstyan noted, the Council’s main concern is the realization of Type A scenarios.
According to the Central Bank, economic growth in Armenia accelerated in the second quarter of 2026, exceeding the long-term sustainable level. The construction and services sectors continued to contribute significantly to growth, indicating excess demand. This is also reflected in the high growth rates of final consumer goods imports and retail trade.
Furthermore, there are signs of expanding external demand, primarily reflected in a significant increase in the number of visits to Armenia. This creates significant risks of wage growth in the relevant sectors and an acceleration in service prices.
On the other hand, risks of excess supply in the domestic market remain due to restrictions on exports to Russia, as well as weakening consumer and investor confidence.
The Central Bank’s “Hawky” Stance and Market Participants’ Expectations
According to the head of the Central Bank, the current economic “boom” indicates that demand exceeds the economy’s potential.
He stated that the Central Bank has certain disagreements with market participants. Despite signs of excess demand, rising prices for virtually all assets, including real estate, and inflation remaining above target, the market expected the regulator to maintain its current monetary policy.
According to the Central Bank, given current macroeconomic trends, participants in the Armenian financial market, on average, expect the Central Bank to maintain the monetary policy rate at the current level over the next year and to reduce it to 6.25% in the medium term.
“Today, the Board of the Central Bank decided to take a more hawkish stance,” the head of the regulator emphasized.
The Central Bank of Armenia’s rate cut cycle began in August 2023, when the regulator cut it from 10.75% to 10.5%. The rate was subsequently gradually reduced, reaching 6.5% in December 2025 and remaining at that level since. The September 15 decision marked the first rate increase since December 2022.
