It also made clear that it will not intervene to reverse or stop a sharp appreciation of the national currency, the dram, which began a few weeks after Russian troops invaded Ukraine on February 24.
The bank predicted in mid-March that economic growth in Armenia will slow down to 1.6 percent this year due to anticipated fallout from the conflict. The International Monetary Fund and the World Bank forecast even lower growth rates, pointing to the South Caucasus state’s close economic ties with Russia.
The Central Bank governor, Martin Galstian, said the Armenian economy is now on course to expand by 4.9 percent in 2022.
“This has mainly to with the presence of foreign visitors in Armenia and the Russian economy’s short-term performance which is not as bad as we expected earlier,” Galstian told a news conference.
The visitors mentioned by him presumably include thousands of Russians who moved to Armenia and/or opened bank accounts there following the outbreak of the war in Ukraine.
About 27,000 foreigners, most of them Russian citizens, opened Armenian bank accounts from February 24 through the end of March. This seems to explain why hard currency inflows to Armenia doubled, according to the Central Bank, in April.
Armenian government data shows that GDP growth accelerated to 8.6 percent in the first quarter of this year and continued unabated in April on the back of sharp gains in the services and construction sectors.
“A considerable influx of foreign visitors and rising internal private spending are helping to boost the services sector and overall consumer demand,” said Galstian.
He also cautioned: “The Central Bank Board reckons that macroeconomic prospects remain highly uncertain due to geopolitical developments.”
Armenia is also very dependent on multimillion-dollar remittances from hundreds of thousands of its citizens working in Russia. The Russian ruble is now stronger than it was before the war, having more than regained its value lost in late February and early March.
The Armenian dram has similarly strengthened against the U.S. dollar by almost 24 percent since the middle of March. Its continuing appreciation is prompting growing concerns from Armenian export-oriented firms and fuelling calls for Central Bank intervention.
Galstian said that the bank will not cut interest rates or intervene in the domestic currency market to cut the dram’s value. He argued that the stronger dram is somewhat easing external inflationary pressures aggravated by the Ukraine war.
“By artificially weakening the dram we would create an even worse inflationary situation which would hit all citizens, including exporters,” said Galstian.
Earlier in the day, the Central Bank board decided to keep its benchmark interest rate unchanged at 9.25 percent. According to the bank, consumer price inflation in Armenia continued to rise in May, reaching an annual rate of 9 percent.