The CBA’s governing board set the refinancing rate at 6.5 percent, up by 0.5 percentage points.
The minimum cost of borrowing stood at 4.25 percent when the bank began tightening its monetary policy in December after a major depreciation of the Armenian currency, the dram, followed by rising consumer prices.
In a statement explaining the latest rate hike, the CBA said that the global economy’s faster-than-expected recovery from the coronavirus crisis is causing the prices of key foodstuffs and commodities imported by Armenia to rise further. It said this “high inflationary environment” will persist in the months ahead.
The bank also reported growing consumer demand within Armenia fuelled by renewed economic growth, rising cash remittances from abroad and an “increase in the public’s inflationary expectations.” “By contrast, private investment activity remains weak,” it said.
According to official statistics cited by the CBA, annual inflation in the country reached 7.9 percent late last month, well above a 4 percent target set by the Armenian authorities for 2021. The CBA governor, Martin Galstian admitted recently that the authorities will likely fail to meet the target.
Galstian also said on June 3 that the bank will revise upwards its 1.4 percent economic growth forecast for 2021 made earlier this year. The CBA statement likewise noted Armenia’s “faster-than-anticipated recovery” from last year’s recession but did not specify the bank’s revised growth projections.
The Armenian government and the World Bank expect Armenia’s economy to expand by more than 3 percent this year after shrinking by 7.6 percent in 2020.