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Central Bank Of Armenia Cuts Interest Rate As Inflation Decelerates

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  • Central Bank Of Armenia Cuts Interest Rate As Inflation Decelerates

    CENTRAL BANK OF ARMENIA CUTS INTEREST RATE AS INFLATION DECELERATES FURTHER IN NOVEMBER
    Venla Sipila

    World Markets Research Centre
    December 3, 2008

    According to the latest figures from the Armenian National Statistical
    Service quoted by ARKA News, consumer prices in the country increased
    by 6.6% year-on-year (y/y) in November, after gaining 8.6% y/y in
    October, and by an average rate of over 11% during the preceding
    three months. Food price inflation moderated to 5.6% y/y, while
    growth of non-food good prices eased to 3.4% y/y. Conversely,
    the rise in service prices somewhat accelerated from October,
    registering a rate of 11.0% y/y in November. Measured month-on-month
    (m/m), Armenian consumer prices on the whole edged up by 0.1%, after
    rising by 0.7% m/m October and by 0.5% m/m in September. Prices of
    non-food goods fell in monthly comparison, as did food prices, even
    if only marginally. Separately, AFX Asia reports that the Central
    Bank of Armenia (CBA) yesterday announced a 50 basis point cut in
    its refinancing rate, taking the policy rate to 7.25%. Before this,
    the CBA council had opted to keep the policy rate stable for two
    months, following eight successive 25-basis-point increases monthly,
    the latest of these having been implemented in September (see Armenia:
    3 September 2008: ). The decision to lower the rate in December was
    taken in order to boost economic growth.

    After strong inflation pressure had driven the interest rate rises
    earlier in the year, the CBA now sees monetary easing as appropriate
    as prices are falling in global markets. Previously, the CBA did
    not embark on a monetary easing path even as global food and energy
    prices were falling, because this easing was not immediately filtered
    to domestic prices.

    Significance:The Armenian interest rate does not yet function as
    an effective policy tool, and mainly reflects the CBA's inflation
    expectations. While the considerable upward price pressure from both
    cost and demand sides earlier in the year has been strong enough to
    lift this year's inflation rate above the targeted 4%, the monetary
    officials' expectations of moderating inflation pressure are warranted
    now that international commodity prices have sharply decreased and
    the global growth outlook turns ever gloomier. Thus, further interest
    rate cuts are to be expected in the near term.
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