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Armenia holds rate on weak inflation, but expects hikes

Tuesday, February 13, 2018 9:12
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      Armenia’s central bank maintained its benchmark refinancing rate at 6.0 percent but repeated its guidance from late last year that there will be a need to gradually neutralize the stimulative monetary and credit conditions to meet its inflation target but inflationary pressures still remain weak and expectations have recently weakened.
      The Central Bank of Armenia (CBA) has maintained its rate since February 2017 after cutting it 12 times by a total of 450 basis points from 10.50 percent in August 2015. 
      Both in December and and November last year the CBA’s board warned it would necessary to gradually neutralize monetary stimulus in the near future so inflation reaches its target.
      And although domestic demand and lending is continuing to grow rapidly, the CBA said it still wants to maintain the current monetary stimulus to “ensure the sustainability of the recovery of demand,” especially as inflationary expectations had weakened “noticeably.”
      Armenia’s inflation rate rose slightly to 2.7 percent in January from 2.6 percent in December and the CBA expects weak inflationary pressures from the external sector as external demand improves.
       In December the central bank said it expected inflation to be in the lower limit of its tolerance range of 2.50 – 5.50 percent (around a 4.0 percent midpoint) by the end of 2017.
      In 2016 inflation fell by 1.1 percent as the former Soviet Republic, locked east of Turkey and west of Azerbaijan, was hit by Russia’s economic crises and a decline in remittances from abroad.
        Armenia’s economy slowed in the third quarter of last year to annual growth of 3.5 percent, down from 5.5 percent in the second quarter but the central bank said activity in the fourth quarter was “very high,” mainly due to growth in services and industry.
      After collapsing in November 2014, Armenia’s dram has been more stable in recent years and was trading at 482.4 to the U.S. dollar today, down 0.4 percent this year.



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