By Emil Danielyan
The Central Bank of Armenia (CBA) has lowered its benchmark lending rate for a third time in two months, citing a continuing decrease in inflation resulting from the global economic recession.
In a statement posted on its website late on Tuesday, the CBA said its governing board set the refinancing rate at 6.75 percent, down by 25 basis points, at a meeting earlier in the day. “The Central Bank board found that in the conditions of a global economic crisis the deflationary environment persisting in international markets and a slowdown in the growth of domestic demand are contributing the formation of low inflation,” read the statement.
The CBA board cut the rate by 50 basis points to 7.25 percent in December and by another 25 points in January. It had increased the minimum cost of borrowing for six consecutive times earlier in the 2008, before the onset of the global downturn, in an effort to contain mounting inflationary pressures on the Armenian economy.
Although consumer prices stopped rising and even fell slightly in the fourth quarter of 2008, according to the National Statistical Service (NSS), full-year inflation in Armenia reached the highest level in over a decade. At 9 percent year on year, the inflation rate was well above the CBA’s and the government’s target rate of up to 5.5 percent.
Official statistics show consumer prices growing by 1.5 percent in January, one of the lowest seasonal inflation rates ever registered in the country. Prime Minister Tigran Sarkisian seized upon this figure to state on Tuesday that the Armenian authorities will manage to bring inflation down to 4 percent this year.
“Deflationary processes observed in world markets are certainly affecting our internal prices,” Sarkisian told the Moscow-based Mir television. This, said the former CBA governor, gives the authorities more room to “print money so that we can mitigate negative consequences of the global economic and financial crisis.”
The latest CBA rate cut will add to downward pressure on the national currency, the dram. Unlike many other currencies, the dram has not weakened against the U.S. dollar in recent months. The Armenian government and the Central Bank are widely believed to have helped to maintain its exchange rate with substantial hard currency injections in the domestic financial market.
In what may be an indication of rising demand for the dollar, the CBA reported that the daily volume of currency trading at the Yerevan stock exchange surged to about $23 million on Wednesday. It stood at $15 million on Tuesday and hovered around $10 million in the previous days.