Tuesday, December 23, 2014

Armenia ups rate 175 bps to anchor inflation expectation

    Armenia's central bank raised its benchmark refinancing rate by 175 basis points to 8.50 percent to anchor inflation expectations around its target head and head off inflationary pressures from the recent rapid depreciation of its dram currency.
    The Central Bank of Armenia (CBA), which has raised its rate by a net 75 basis points this year, added that it still expects inflation to be within its allowable range by the end of a 12-month period.
    On Dec. 9 CBA Governor Artur Javadian was quoted as saying the central bank had stepped up interventions in the local currency market by selling fixed amounts of U.S. dollars to Armenian banks and he expected this to end the recent sharp fluctuations in the exchange rate of the dram.
    Javadian attributed a weakening of the dram on Russia's economic woes - Armenia's major trading partner - with the depreciation of the ruble triggering panic buying of U.S. dollars in Armenia and other ex-Soviet states.
    The Armenia dram currency started depreciating in late October and the plunged sharply in late November, hitting a year-low of 490.34 to the U.S. dollar on Dec. 17. Today it was quoted at 456.17 to the dollar, down just over 11 percent for the year.
    The CBA said today that expectations of rate rises in the United States has triggered capital outflows from developing countries to the U.S. while lower oil prices and geopolitical problems affecting Russia had triggered negative expectations of ruble devaluation.
    The CBA has also called on financial market participants to refrain from currency speculation, with the central bank starting proceedings against some commercial banks and currency retailers that were likely to result in fines.
    Armenia's headline inflation rate rose slightly to 2.6 percent in October from 2.15 percent in September and the CBA targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
    The economy of Armenia, located east of Turkey and west of Azerbaijan, has been hit by the economic crises in Russia but its Gross Domestic Product still expanded by an annual 5.3 percent in the third quarter, up from 2.3 percent in the second quarter.



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