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Armenian Central Bank Again Cuts Interest Rate


Armenia - Central Bank Governor Artur Javadian (R) speaks at Prime Minister Karen Karapetian's meeting with Armenia's top bankers in Yerevan, 27Sep2016.

Armenia - Central Bank Governor Artur Javadian (R) speaks at Prime Minister Karen Karapetian's meeting with Armenia's top bankers in Yerevan, 27Sep2016.

The Central Bank of Armenia (CBA) cut its benchmark interest rate on Tuesday for the sixth time this year, citing the need to prevent prolonged consumer price deflation in the country.

The CBA’s governing board cut the refinancing rate by 0.5 percentage points, to 6.75 percent. Its previous rate cut was announced just over a month ago.

In a statement, the bank pointed to continuing deflation, saying that the national consumer price index was down by almost 2 percent year on year as of the end of August. It also cited government data indicating that economic growth in Armenia began to slow down in July.

“Indicators published in the third quarter of the year testify to a worsening economic growth outlook,” said the statement. It said this could further suppress the already “weak” consumer demand.

The “deflationary risks increasing as a consequence of weak demand” necessitate a further easing of the CBA’s monetary policy, added the statement.

The minimum cost of borrowing stood at 6.75 percent when the Armenian dram began weakening against the U.S. dollar in October 2014 amid falling cash remittances from Armenian migrant workers in Russia. The CBA raised it to 10.5 percent and tightened minimum reserve requirements for commercial banks, helping to stabilize the Armenian currency’s exchange rate by the beginning of 2015.

The Central Bank began gradually easing its monetary policy a year ago. The authorities in Yerevan have reported a steady drop in consumer prices since then.

The CBA also noted on Tuesday sluggish global growth. “The Central Bank board reckons that no external inflationary pressures are anticipated in the months ahead,” it said.

The Armenian government and Western lending institutions forecast early this year that Armenia’s own growth will slow from 3 percent in 2015 to roughly 2 percent in 2016 due to adverse effects of a recession in Russia.

The government recorded a growth rate of 4.4 percent in the first quarter of this year. The growth appears to have slowed in the following months despite the CBA’s repeated rate cuts.

In what may have been a related development, Prime Minister Karen Karapetian met with CBA Governor Artur Javadian and top executives of Armenian commercial banks later on Tuesday to discuss ways of stimulating economic activity in the country.

A government statement said Javadian presented the CBA’s monetary policy and “the overall situation with lending” in the Armenian economy at the meeting.

According to the statement, Karapetian urged the bankers to propose “unconventional solutions” that would facilitate greater lending to businesses and small and medium-sized enterprises in particular.

“Our goal is to make sure that businesses can ‘breathe,’” Karapetian was quoted as saying. “In that regard, I expect you to come up with proposals as to which concrete measures need to be taken in order to channel more loans into the economy.”

“It’s time to propose practical solutions,” added the recently appointed prime minister.

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