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ARMENIAN CENTRAL BANK RAISES RATES FURTHER AS INFLATION INTENSIFIES
BYLINE: Venla Sipila
Global Insight
March 7, 2011
The Central Bank of Armenia (CBA) has increased its refinancing
interest rate by 50 basis points, Reuters reports. This decision
followed a similar move taken in February, and brought the policy
rate to 8.25%. This further monetary tightening closely followed
the publication of February inflation data by the Armenian National
Statistical Service, which showed that consumer prices in the month
soared by 12.4% year-on-year (y/y), following an increase of 10.6% y/y
in January. In month-on-month (m/m) comparison, prices rose by 1.9%,
having now advanced by 4.8% during the first two months of the year.
As expected, this rapid gain in consumer prices can mainly be traced
back to increases in the cost of food; this surged by 18.8% y/y in
February, bringing the cumulative gain since the beginning of the
year to 7.0%. Indeed, the CBA also identified high global food and
commodity prices for the intense inflation pressures, noting that the
contribution of food on overall consumer price inflation in February
stood at around 10.1 percentage points. Inflation substantially
exceeds the CBA's target range of 4.5% with a fluctuation band of
1.5 percentage points either side, and the central bank outlined
further gradual tightening of monetary policy in the coming months,
in order to bring the inflation rate back within the target range in
the second half of this year.
Significance:The CBA's monetary policy has now clearly entered
a new cycle, tightening from February, following eight months of
stable rates. The central bank seems to suggest that the extremely
high food and commodity prices have started to have some impact on
inflation expectations as well, thus reaching beyond their cost-side
inflationary effects. On the other hand, given Armenia's still
relatively undeveloped financial environment, the key function of the
policy rates is to signal the monetary authorities' own inflation
expectations. Pressures from commodity prices are likely to remain
considerable in the near term. However, Russia has agreed to keep its
gas prices constant in 2011, and this brightens the inflation outlook
somewhat. Fearful of social unrest as a result of rising gas prices,
ArmRosGazprom, the Armenian gas distributor, had already vowed to keep
retail prices constant, even if Russian import prices have increased
from April, as planned before.
From: A. Papazian
BYLINE: Venla Sipila
Global Insight
March 7, 2011
The Central Bank of Armenia (CBA) has increased its refinancing
interest rate by 50 basis points, Reuters reports. This decision
followed a similar move taken in February, and brought the policy
rate to 8.25%. This further monetary tightening closely followed
the publication of February inflation data by the Armenian National
Statistical Service, which showed that consumer prices in the month
soared by 12.4% year-on-year (y/y), following an increase of 10.6% y/y
in January. In month-on-month (m/m) comparison, prices rose by 1.9%,
having now advanced by 4.8% during the first two months of the year.
As expected, this rapid gain in consumer prices can mainly be traced
back to increases in the cost of food; this surged by 18.8% y/y in
February, bringing the cumulative gain since the beginning of the
year to 7.0%. Indeed, the CBA also identified high global food and
commodity prices for the intense inflation pressures, noting that the
contribution of food on overall consumer price inflation in February
stood at around 10.1 percentage points. Inflation substantially
exceeds the CBA's target range of 4.5% with a fluctuation band of
1.5 percentage points either side, and the central bank outlined
further gradual tightening of monetary policy in the coming months,
in order to bring the inflation rate back within the target range in
the second half of this year.
Significance:The CBA's monetary policy has now clearly entered
a new cycle, tightening from February, following eight months of
stable rates. The central bank seems to suggest that the extremely
high food and commodity prices have started to have some impact on
inflation expectations as well, thus reaching beyond their cost-side
inflationary effects. On the other hand, given Armenia's still
relatively undeveloped financial environment, the key function of the
policy rates is to signal the monetary authorities' own inflation
expectations. Pressures from commodity prices are likely to remain
considerable in the near term. However, Russia has agreed to keep its
gas prices constant in 2011, and this brightens the inflation outlook
somewhat. Fearful of social unrest as a result of rising gas prices,
ArmRosGazprom, the Armenian gas distributor, had already vowed to keep
retail prices constant, even if Russian import prices have increased
from April, as planned before.
From: A. Papazian