Tuesday, November 10, 2015

Armenia cuts rate 50 bps as inflation expectations fall

    Armenia's central bank cut its key refinancing rate by a further 50 basis points to 9.75 percent to prevent a further fall in inflation expectations and said it would consider further monetary easing in the absence of any external and internal risks.
    It is the second move by the Central Bank of Armenia (CBA) to roll back three rate hikes from December through February in response to a sharp fall in the value of the dram currency that accelerated inflation.
    The CBA has now cut its refi rate by 75 basis points this year following an initial cut in August. In September the bank left the rate steady, saying inflationary expectations were still high.
    The exchange rate of the dram plunged in November and December last year, dragged down by the recession in Russia. Armenia, which borders Turkey to the west and Iran to the south, was the first non-Baltic state to secede from the Soviet Union in 1990.
    Since its sharp fall, the dram has traded in a range from 470-485 to the U.S. dollar and was quoted at 479.9 today, down only 1 percent since the start of the year.
    Armenia's inflation rate eased further to 1.9 percent in October from 3.3 percent in September and well-below a 2015 high of 7.75 percent in April. The central bank targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
    The central bank expects inflation to remain low in coming months due to a continuing fall in international commodity prices before slowly stabilizing and hitting its target range.
    Last week the International Monetary Fund (IMF) said Armenia's authorities should return to greater exchange rate flexibility and to limit intervention while the central bank should gradually unwind its emergency measures introduced last year to help support bank lending and growth.
    The IMF forecast growth this year of 2.5 percent, below 2014's 3.4 percent, and 2016 growth of 2.2 percent.
    Inflation is seen averaging 4.3 percent this year and 3.4 percent in 2016 compared with 3.0 percent in 2014.



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