Tuesday, June 28, 2016

Armenia cuts rate 25 bps but omits further cut guidance

    Armenia's central bank cut its benchmark refinancing rate by a further 25 basis points to 7.50 percent to help the deflationary environment gradually disappear so inflation returns to its target.
    But the Central Bank of Armenia (CBA) did not reiterate last month's guidance that it expected to ease its policy stance further, signaling that it will pause in coming months.
    The central bank said it expected the low inflation environment to continue in coming months but inflation expectations will remain relatively stable. The CBA targets inflation of 4.0 percent, plus/minus 1.5 percentage points.
     The CBA, which has now cut its rate by 300 basis points since embarking on an easing cycle in August 2015, including cuts of 125 points this year, added that economic activity in the first five months of the year was relatively high as aggregate demand recovered.
    Although domestic demand remains low, it is recovering faster than expected due to recent government stimulus policies and there is also relative stability in international commodity markets, with some products showing inflationary trends.
    Armenia's economy grew by an annual rate of 4.4 percent in the first quarter of this year, up from 1.9 percent in the previous quarter while the inflation rate fell to minus 2.1 percent in May from minus 1.9 percent in April.
    After plunging in November and December 2014 in response to the fall in Russia's ruble - Armenia's largest trading partner - Armenia's dram has firmed since February this year.
    Today the dram was trading at 476 to the U.S. dollar, up 1.6 percent this year.



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