The Central Bank of Armenia (CBA) on Tuesday lowered its benchmark interest rate for the fourth time this year amid accelerating consumer price deflation registered in the country.
The CBA’s governing board cut the refinancing rate by 0.25 percentage points to 7.5 percent. The three previous rate cuts were announced in May, March and February.
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 9.5 percent in January 2015 and 10.5 percent in February 2015, a move that helped to stabilize the Armenian currency’s exchange rate.
The Central Bank began gradually easing its monetary policy in August 2015. The authorities in Yerevan have since reported a steady decrease in inflation.
In a statement explaining the latest rate cut, the CBA said the national consumer price index was actually down by 2.1 percent year on year as of the end of May.
The bank reported a deflation rate of 1.4 percent in February. Consumer prices continued to fall in the following months, even though economic growth in Armenia accelerated, according to government data, in the first quarter of this year.
The National Statistical Service (NSS) said last month that the Armenian economy expanded, in real terms, by 4.4 percent in January-March. Both the government and the International Monetary Fund had forecast much slower growth for 2016.
The CBA said that consumer demand in the country remains weak but is now “recovering faster than expected.” Nevertheless, the bank said it expects the “low inflationary environment” to persist in the coming months and is therefore easing its monetary policy further. The rate cut will help to reverse the deflation in the second half of this year, added the statement.