Tuesday, March 29, 2016

Armenia cuts rate 25 bps and set to ease further

    Armenia's central bank lowered its benchmark refinancing rate by 25 basis points to 8.25 percent and said it will continue to ease its monetary policy further in light of the expected economic conditions and the absence of additional external and internal risks.
    The Central Bank of Armenia (CBA), which has now cut its rate by 225 basis points since embarking on an easing cycle in August 2015, added that its board considers it "expedient" to continue to gradually ease monetary conditions and last year's easing was largely sufficient to offset deflationary pressures.
    The CBA expects slow global economic growth and lower international commodity prices to continue to transmit deflation to domestic prices in coming months.
    In February Armenia's inflation rate fell further to minus 1.7 percent in February from minus 0.4 percent in January, mainly due to a fall in prices of imported food.
    Armenia's economic activity index in January and February rose by an annual rate of 4.7 percent, exceeding expectations slightly, but the CBA and government is continuing to stimulate domestic demand as it remains low, the central bank said.
    At the same time, the CBA said it had seen a significant increase in external demand and exports that has helped offset weak demand on aggregate demand. Low prices from commodities and food products on international markets is also preserving the purchasing power, lowering costs and leading to a gradual decline in inflation expectations.
    In December the CBA said it believed it had now largely overcome the inflationary risks from the fall in the dram's exchange rate.
    The dram plunged in November and December in 2014 in response to the fall in Russia's ruble - Armenia's largest trading partner - but gradually stabilized as the central bank raised rates three times by a total of 375 basis points from December to February 2015.
    In 2015 the dram depreciated by 1.8 percent against the U.S. dollar in 2015 compared with a 14.7 percent fall in 2014.
    Since mid-February the dram has been on a firming trend and was quoted at 482.16 to the dollar today, up 2.8 percent since hitting 495.9 on Feb. 14 and up 0.3 percent since the start of this year.




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