Tuesday, August 15, 2017

Armenia maintains rate for 3rd time, inflation seen rising

     Armenia's central bank left its benchmark refinancing rate at 6.0 percent for the third time in a row, confirming that it still expects inflation to gradually rise due to improving economic activity and a recovery of domestic demand amid a restrained fiscal policy.
      The Central Bank of Armenia (CBA) has maintained its rate since February after slashing the rate 12 times by a total of 450 basis points beginning in August 2015.
      Armenia's inflation rate dropped 2.6 percent in July from June for an annual rate of 0.9 percent, down from 1.1 percent, due to a seasonal fall in agricultural product prices.
      With more stable international commodity markets, the CBA said it didn't expect any significant inflationary effects from the external sector in coming months so inflation should gradually rise due to improving domestic demand and high economic activity.
      The CBA reiterated its view from June that it expects inflation to stabilize around its target by the end of this year and remain in that range during the forecast horizon, with monetary and credit conditions remaining unchanged for some time.
     The CBA, which targets inflation of 2.50 - 5.50 percent around a 4.0 percent midpoint, will issue its third quarter inflation report on Aug. 25.
     Armenia's Gross Domestic Product jumped by an annual 6.5 percent in the first quarter of this year from minus 1.0 percent in the previous quarter, for the strongest expansion since the first quarter of 2013.
     Armenia's economy was hit hard by Russia's economic crises, with the exchange rate of its dram plunging in November 2014 in response to the fall in Russia's ruble. But after a series of rate hikes between December 2014 and February 2015, the dram stabilized.
     Since August 2015 the CBA has been easing its monetary policy and growth in the first quarter of this year was boosted by the sectors of manufacturing, electricity, trade, transportation, information, financial and accommodation.
      Last month the International Monetary Fund said Armenia's economy was showing signs of a recovery after the past falls in remittances and the price of copper, the country's main export, had weighed on growth since late 2014.
      The IMF forecast 2017 and 2018 growth of 2.9 percent, respectively, and 3.0 percent in 2019, sharply up from 0.2 percent in 2016.
       Armenia's medium-term growth is projected at 3.5 to 4.0 percent with potential growth now estimated to be 1 percentage point lower than in the pre-crises period, with risks stemming from remittances, copper prices and growth in its key trading partners.
      Improving economic activity is also pushing up inflation and private sector credit growth, the IMF said, forecasting 1.8 percent inflation by end-2017, rising to 4.0 percent by the end of 2018 and 2019. This compares with minus 1.1 percent inflation end-2016.
      The exchange rate of Armenia's dram has been slowly appreciating this year and was trading at 478.3 to the U.S. dollar today, up 1.2 percent this year.



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