Armenia's central bank cut its benchmark refinancing rate for the third time this year as inflation tumbled in July but said inflation should rise next year due to an expected expansion of fiscal policy that increases aggregate demand.
The Central Bank of Armenia cut its refinancing rate by 25 basis points to 6.75 percent for total rate cuts of 100 points so far this year.
Armenia's inflation rate fell to 0.4 percent in July from 1.8 percent in June but the central bank expects inflation will gradually increase and stabilize around its target in the first quarter of 2015.
The central bank targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
In a statement, the central bank said geopolitical developments had increased uncertainties associated with the economic prospects of partner countries.
Economic activity in Armenia, located east of Turkey and west of Azerbaijan, is being hit by slow growth in Russia.
Armenia's economy remained weak in the second quarter that will keep inflation low in August but an increase in electricity tariffs in the fourth quarter and the introduction of compulsory labeling on a range of products should raise inflation.
Last month the central bank estimated Gross Domestic Product growth of 4.0 percent by the end of the second quarter due to added value in agriculture and services, with economic activity up by 4 percent in the first five months of this year from the same 2013 period.
In the first quarter of this year Armenia's GDP was up by an annual 3.1 percent, down from 5.1 percent in the fourth quarter and below budgeted growth of 5.2 percent.
In February, the central bank forecast 2014 growth of between 5.4 and 6.1 percent, up from 3.2 percent growth in 2013.
In the first five months, private consumption in Armenia grew by 4.3 percent from the same period last year while private investments dropped by 2.2 percent. Exports were up by 3.2 percent and imports by 2.0 percent while net inflow of private remittances rose by 4.1 percent, Armenia's statistics office, ArmStat said.