Citing falling inflation and slower-than-projected economic growth, the Central Bank of Armenia (CBA) lowered on Tuesday its refinancing rate that essentially determines the cost of borrowing in the country.
The benchmark rate was cut by 0.5 percentage points to 8 percent at a meeting of the CBA’s governing board.
The minimum cost of borrowing was thus brought back to a level that existed until last August. It had stood at 8 percent since September 2011.
The CBA tightened its monetary policy after consumer price inflation reached an annual rate of 8.5 percent in late July. The figure was well beyond a target band of 4 percent (±1.5 percentage points) that was set by the Armenian authorities for this year. The authorities blamed the higher-than-expected inflation on a sharp rise in the price of Russian natural gas as well as unfavorable weather conditions that pushed up the cost of fruits and vegetables grown in Armenia.
In a statement issued after the latest board meeting, the CBA said annual inflation eased to just over 7 percent at the end of October and will continue falling in the months to come because of a “non-inflationary environment” in the international food markets. It said the authorities will meet their inflation targets by the middle of 2014.
Significantly, the CBA also attributed the rate cut to slowing growth. According to the National Statistical Service (NSS), Armenia’s Gross Domestic Product increased by less than 1 percent in the second quarter of 2013 after a 7.5 percent first-quarter rise. The International Monetary Fund has forecast a full-year growth rate of less than 4 percent.
The Armenian economy grew by 7 percent last year. President Serzh Sarkisian threatened in March to sack his government if it fails to “ensure 7 percent economic growth in 2013-2017” as well. Sarkisian likewise told his newly reshuffled cabinet in May to make sure that the growth rate does not fall below 7 percent in 2013.