Tuesday, January 29, 2019

Armenia cuts rate 25 bps and sees continued easy policy

     Armenia's central bank lowered its benchmark refinancing rate by 25 basis points to 5.75 percent and said it will be necessary to maintain easy monetary conditions for a longer period to ensure price stability as inflation is now expected to remain below the targeted 4.0 percent until the end of the the forecast horizon.
     Today's rate cut comes after the Central Bank of Armenia (CBA), which turned dovish in November last year, turned more pessimistic about the outlook for inflation and said the risks to its outlook were on the downside.
      Last month the CBA confirmed its easing bias but had expected inflation to stabilize around its target by the end of its forecast horizon after dipping below the lower end of the range that extends from 2.5 to 5.5 percent.
      It is CBA's first rate cut since February 2017 when it wrapped up an easing cycle that involved 12 rate cuts for a total easing of 450 basis points that began in August 2015. Starting in November 2017 the CBA then shifted to a tightening bias before adopting an easing bias in November 2018.
     Armenia's inflation rate was steady at 1.8 percent in December and November and CBA expects the low inflationary environment to remain as global economic growth shows signs of weakening in both advanced and emerging market economies, and this tends to weaken global commodity prices and thus inflationary pressures from abroad.
      Economic activity in Armenia also remains weak, with growth in 2018 likely around 5.0 percent, as demand is weakening due to tighter fiscal policy and slower private spending.
      Economic growth has slowed in the last three quarters, with gross domestic product in the third quarter up 2.7 percent year-on-year, down from 7.5 percent in the second and 9.7 percent in the first.
     Armenia's dram has weakened slightly this year and was trading around 486 to the U.S. dollar today, down 0.5 percent this year.




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