Citing falling inflation and the need to stimulate consumer demand, the Central Bank of Armenia (CBA) has lowered its benchmark refinancing rate for the fourth time this year.
The CBA’s governing board cut the minimum cost of borrowing in the country by 0.25 percentage points to 6.75 at a meeting on Tuesday. It had approved similar cuts in February, May and June.
The refinancing rate was set at 7.75 percent in December 2013 amid an annual inflation rate of 5.6 percent, which was just above the Armenian authorities’ target band.
According to the authorities, consumer prices have since been steadily declining. A statement released by the CBA said year-on-year inflation stood at just 0.4 percent in July owing to a seasonal drop in the prices of agricultural products.
The statement said inflation will rise in the coming months because of seasonal factors and a 10 percent rise in electricity prices which took effect on August 1. It insisted at the same time that inflation “will remain at a low level in the short term.”
“The board concludes that uncertainties on the external front, related to the economic prospects of partner countries, have increased in light of geopolitical developments. Nevertheless, no major inflationary pressures are expected from the external sector,” the statement added in a clear reference to the impact of Western economic sanctions against Russia.
The authorities, the Central Bank explained, can therefore afford an “expansion of gross demand” in the second half of this year and next year. It said demand was “weak” in the second quarter of this year.
It remains to be seen whether the softening of the bank’s monetary policy will mitigate an economic slowdown anticipated in Armenia as a result of worsening conditions in Russia. The Armenian government last month lowered its economic growth forecast for 2014 to 4 percent from 5 percent.