The CBA’s governing board set the refinancing rate at 7 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.
The CBA did not immediately comment on the latest rate increase, the fifth such measure in less than eight months.
It previously raised the benchmark rate on June 15, saying that the world 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. This “high inflationary environment” will persist in the months ahead, it said.
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.”
According to the Armenian government’s Statistical Committee, a continued increase in the cost of food products pushed up year-on-year inflation to 6.5 percent in June, well above a 4 percent target set by the government and the Central Bank for 2021. The CBA governor, Martin Galstian admitted in May that the authorities will likely fail to meet the target.
So far the significant tightening of the bank’s monetary policy appears to have not slowed the Armenian economy’s recovery from last year’s recession primarily caused by the coronavirus pandemic.
Prime Minister Nikol Pashinian said on July 1 that the country’s GDP is now projected to grow by 6 percent this year. The International Monetary Fund and the World Bank forecast more modest growth rates earlier this year.