The Central Bank of Armenia (CBA) has increased the minimum cost of borrowing in the country for the first time in more than two years, citing higher-than-expected consumer price inflation.
The CBA raised its benchmark refinancing rate by 0.5 percentage points to 8.5 percent at a meeting of its governing board held late on Tuesday. In a statement, the bank attributed the move to the fact that annual inflation reached 8.5 percent at the end of last month.
The inflation rate is well beyond a target band of 4 percent (±1.5 percentage points) that was set by the Armenian authorities for this year. The CBA primarily blamed it on recent double-digit rises in the prices of natural gas and electricity. The energy tariffs were in turn pushed up by a 50 percent surge in the cost of Russian gas imported to Armenia.
Inflation in the country rose considerably even before the higher tariffs took effect in early July. This was the result of significant rises in the prices of fruits and vegetables, which were caused by unfavorable weather conditions.
The CBA expressed confidence that the higher lending rate will help to bring down the inflation rate to the projected level. It pledged to ease its monetary policy if inflationary pressures on the Armenian economy decrease in the coming months.
The refinancing rate had stood at 8 percent since September 2011. Its impact on economic activity in Armenia is more limited than in developed economies due to the modest size of the local debt market.