YEREVAN, September 17. /ARKA/. Freedom Broker Armenia Director Hovak Hovakimyan does not expect the Central Bank rate hike to have a significant impact on market sentiment and investment activity in the local market.
In an interview with ARKA, he explained that his forecast is based on the moderate tightening of monetary conditions, as well as the fact that this step was at least partially already priced into market expectations.
On September 15, the Board of the Central Bank of Armenia decided to increase the monetary policy rate by 0.25 percentage points to 6.75%.
Hovakimyan called the regulator’s decision to increase the rate by 25 basis points, overall, an expected step. “We previously noted the likelihood of a rate hike in the short term, given that consumer inflation in the country has remained above the upper limit of the Central Bank’s target range of 3% (±1 percentage point) since February of this year. At the same time, according to regulator representatives, the stability of core inflation is of particular concern,” he explained. According to the director of Freedom Broker Armenia, another important factor is the growing risk of external inflationary pressure, amid soaring oil prices (above $100 per barrel) and logistical complications due to the recent geopolitical escalation in the Middle East: ongoing restrictions on shipping through the Strait of Hormuz (due to the conflict between the US and Iran) and problems with shipping through the Bab el-Mandeb Strait, which connects the Red Sea and the Gulf of Aden (one of the key routes for global maritime oil transportation), etc.
Hovakimyan also noted that slight pressure on prices in the government bond market is likely, although the impact on prices/yields of dram-denominated corporate bonds, in his view, will be insignificant due to weak market liquidity and existing, relatively wide spreads.
“At the same time, it is worth considering that if the cycle of monetary policy tightening continues amid persistent inflationary factors, the market reaction will be more pronounced. However, low liquidity and limited market efficiency may lead to its manifestation with a time lag, as well as an incomplete revaluation of individual issues,” he concluded.
