Armenia’s central bank left its benchmark refinancing rate at 6.0 percent and said expansionary monetary conditions will be needed for a longer period of time to maintain price stability as inflation is expected to be below the lower end of its target range before stabilizing around the 4.0 percent midpoint target by the end of the forecast horizon.
The Central Bank of Armenia’s (CBA) guidance confirms its shift toward a dovish stance in November this year when it moved away from a tightening bias that had been in place since November 2017.
Between August 2015 and February 2017 the CBA cut its key rate 12 times and by a total of 450 basis points.
CBA noted the inflation rate eased to 1.8 percent in November from 2.8 percent in October due to lower prices of seasonal goods and the central bank said it expects no inflationary pressures from the external sector in coming months.
CBA targets inflation of 4.0 percent, plus/minus 1.5 percentage points, and said the risks of meeting its inflation target by the end of the forecast horizon, normally two years, is still assessed to be downward.
“However, should there be risks to the inflation and economic growth outlook deviating from the prediction scenario, the CBA will adjust the monetary policy directions accordingly, while ensure the price stability,” the central bank said.
Aggregate demand was relatively weak during the second half of the year due to a persistent contraction of fiscal policy and weaker private spending, CBA said, adding low inflation was helping maintain real purchasing power and anchoring inflation expectations.
Armenia’s gross domestic product grew by an annual 2.7 percent in the third quarter, down from 7.5 percent in the second quarter.
The Central Bank of Armenia issued the following statement: