Tuesday, March 28, 2017

Armenia pauses in easing cycle after 12 rate cuts

    Armenia's central bank maintained its key refinancing rate at 6.0 percent, saying the impact of 12 rate cuts for total easing of 450 basis points will continue to be transmitted to the economy during this year,  leading to faster economic activity and higher inflation.
     The Central Bank of Armenia (CBA), which cut its rate to the current level from 10.50 percent between August 2015 and February this year, said economic activity in January-February had significantly exceeded its expectations as the industry, services and trade sectors saw higher growth.
     Domestic demand in  Armenia - located east of Turkey, north of Iran and west of Azerbaijan - is also recovering, helped by stimulating monetary and fiscal policy during the last two years.
     Armenia's inflation rate rose further to minus 0.2 percent in February from minus 0.6 percent in January while the exchange rate of the dram has firmed this month.
    In addition to slower demand, Armenia's inflation rate has been pushed down by lower electricity tariffs, lower prices of some non-food products and lower natural gas prices.
    In its latest inflation report from last month, the central bank said it would continue easing its policy in the first quarter of this year due to a more restrained fiscal policy compared with 2016.
     The CBA also said the inflation rate projected in the 2017 budget was 4.0 percent, plus/minus 1.5 percentage points.
    The dram plunged in November 2014 in response to the economic crises in Russia, Armenia's largest trading partner, and the fall in the ruble.
    In response, the CBA quickly raised its key rate by 375 basis points to 10.50 percent from December 2014 to February 2015, helping stabilize the dram's exchange rate.
     Since then the dram has been more stable and was trading around 484 to the U.S. dollar, largely unchanged since the start of this year.



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