Armenia's central bank cut its rate by a further 25 basis points to 7.5 percent, its third rate cut since November, as inflation has declined faster than expected due to low economic activity and lower international food prices.
The Central Bank of Armenia (CBA) cut its rate by 50 basis points in November and then another 25 points in December, changing course after raising its rate in August by 50 basis points. In December the CBA said monetary policy would be weakened further in 2014.
Armenia's inflation fell to 5.5 percent in January from 5.56 percent in December, hitting the CBA's upper limit of its inflation target. The central bank targets inflation in a range of 5.5 percent to 2.5 percent around a midpoint of 4.0 percent.
The bank said its board believes that inflation will continue to decline over the next 12 months, hitting the lower border of its range by the third quarter, erasing the impact of higher energy prices in July. It does not expect any inflationary pressures from the external sector.
Economic growth remains low, the central bank said, although improving in the fourth quarter and should improve further on the back of the bank's rate cuts and an expected expansion of fiscal policy in the second half of this year and private investment.
Armenia's headline deficit is projected to rise to 2.3 percent of Gross Domestic Product in 2014 from less than 1.0 percent in 2013 and then ease to 2.0 percent in 2015.
In the third quarter of 2013, Armenia's GDP expanded by an annual 1.4 percent, up from 0.6 percent in the second quarter.
Last week the International Monetary Fund and Armenia agreed on an IMF credit of up to US$125 million.