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Armenia cuts rate 25 bps, to ease more on deflation risks

Tuesday, November 15, 2016 9:18
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    Armenia’s central bank cut its benchmark refinancing rate by a further 25 basis points to 6.50 percent and said it expects to ease further as there are still risks of deflation in the medium term.
   The Central Bank of Armenia (CBA) has now cut its rate by 225 basis points this year and by 400 points since embarking on an easing cycle in August 2015.
    Armenia’s inflation rate rose to minus 0.9 percent in October from minus 1.9 percent in August and September but is expected decline in the first quarter of next year in response to lower gas and electricity prices.
    The CBA, which targets inflation in the medium term of 4.0 percent, plus/minus 1.5 points, added that it is not expecting any inflationary pressures from the foreign sector in coming months although there have been some inflation in international markets recently.
    Economic activity in Armenia - located east of Turkey, north of Iran  and west of Azerbaijan - is continuing to slow down, the central bank said, due to slowing growth in industry and agriculture. 
    But it expects demand to recover due to monetary and fiscal policies implemented last year and this year. Armenia’s Gross Domestic Product grew by an annual rate of 1.5 percent in the second quarter of this year, down from 4.5 percent in the first quarter.
     The exchange rate of Armenia’s dram plunged in late November 2014 in response to the economic crises in Russia, Armenia’s largest trading partner, and the fall in the ruble.
    In response, the CBA quickly raised its rate by 375 basis points to 10.50 percent from December 2014 to February 2015, helping stabilize the dram’s exchange rate.
    This year the dram has been slowly appreciating and was trading at 478.4 to the U.S. dollar today, up 1.1 percent since the start of this year.


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