Armenia's central bank cut its benchmark refinancing rate by 25 basis points to 7.25 percent, saying it expects a low inflationary environment in coming months but that the annual inflation rate will return to its target as the deflationary environment gradually disappears.
The Central Bank of Armenia (CBA) has now cut its rate by 325 basis points since embarking on an easing cycle in August 2015, including cuts of 150 points this year.
The CBA said the risks of deflation may dominate in the short term but it can adequately respond to this to ensure that it meets its medium-term inflation target of 4.0 percent, plus/minus 1.5 percentage points.
Armenia's inflation rate was minus 1.3 percent in July, up from minus 1.1 percent in June for the eight consecutive month of deflation as the central bank attributed lower prices in July to a seasonal decline in prices for agricultural products and a fall in natural gas prices.
Armenia's dram currency has been firming since mid-February and the central bank said changes in the European Union - apparently a reference to Brexit - had not had a significant impact on its economy, with economic activity in the second half of this year expected to improve from the first half due to positive demand for its exports.
At the same time, inflation expectations have been reduced, making it possible for long-term market interest rates to decline, helping private consumption and domestic demand recover.
The dram was trading at 475.8 to the U.S. dollar today, up 1.7 percent from 483.7 at the start of this year.
On Aug. 26, the CBA will publish its third quarter inflation report.