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Armenia holds rate after 2 hikes as demand still weak

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      Armenia’s central bank left its benchmark interest rate steady, saying it considers it appropriate to maintain the rate after two recent rate hikes in response to rising inflation and inflation expectations as demand remains weak.
     The Central Bank of Armenia (CBA) kept its refinancing rate at 5.50 percent after raising it by a total of 125 basis points in December last year and at its previous board meeting in February this year.
     The two rate hikes completely unwound the central bank’s four rate cuts last year in response to the COVID-19 pandemic and the refinancing rate is now back to its level before the rate cuts began in March 2020.
     Last year’s rate cuts from March through September extended a monetary easing cycle that began in August 2015 when the rate was 10.50 percent. The rate is now 5 percentage points below then.
     CBA said its board was unanimous in its view that in the near future monetary policy will be aimed at neutralizing any risk of an acceleration of inflationary expectations without damaging a recovery of demand.
      After some acceleration in the near future, CBA expects inflation to decelerate within the forecast horizon to be close to the 4.0 percent target.
      Inflation in Armenia, which saw its worst military confrontation with with neighboring Azerbaijan over the Nagorno-Karabakh region in October last year, has risen in the last four months to 5.3 percent in February from 1.3 percent in October 2020.
     After more than a month of bloodshed, Armenia and Azerbaijan signed a Russian-brokered peace deal on Nov. 10 and CBA said economic activity remained weak in the first quarter of this year reflecting the impact of continued weak demand and low private consumption.
     ”Despite a slightly expanding fiscal policy, amid uncertainty and slowing credit growth, domestic demand is expected to remain somewhat subdued in the near future,” CBA said, adding under those conditions it does not expect any inflationary impact from the domestic economy.


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