The CBA’s governing board said after a regular meeting on Tuesday that it has raised the refinancing rate by 25 basis points to 8.5 percent.
The cost of borrowing stood at 7.25 percent as recently as in early January. Consumer prices in Armenia have continued to rise significantly since then, resulting in an annual inflation rate of 11.5 percent last month.
The figure reported by the National Statistical Service (NSS) was well above the maximum target of 5.5 percent that was set by the Armenian government and the CBA for this year. According to the NSS, inflation was mainly driven by the increased cost of food products.
In a statement, the CBA noted that the first-quarter rise in international food prices “exceeded expectations.” It said this means that inflationary pressures on the Armenian economy will remain strong in the coming months.
But the bank said they will ease in the second half of 2011 thanks to growth in domestic agricultural output anticipated by the Armenian authorities.
“I think that the latest increase in the Central Bank’s refinancing rate is a reaction to the inflationary pressures,” Gagik Minasian, chairman of the Armenian parliament’s committee on finance and budgetary affairs, told RFE/RL’s Armenian service on Wednesday.
Minasian was confident that the measure will not stifle economic growth in the country, which is projected to accelerate to 4.6 percent in 2011. “I don’t see problems with economic growth,” he said.
The CBA’s refinancing rates have always had a limited impact on inflation and economic activity in Armenia because of the small size of the local debt market.