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ARMENIAN INTEREST RATES KEPT ON HOLD AS INFLATION FINALLY EASES
BYLINE: Venla Sipila
Global Insight
May 11, 2011
The Central Bank of Armenia (CBA) has kept its refinancing rate
stable at 8.5% in May, Reuters reports. This follows policy rate
increases every month since February (see Armenia: 13 April 2011:
Far-Above-Target Inflation Spurs Further Interest Rate Hike in
Armenia). The CBA took this decision after consumer prices in April
had retreated by 0.2% from March, whereas annual inflation eased
to 8.9% from 11.5% in March, according to the Armenian National
Statistical Service. The central bank expects inflation pressures
to moderate further in the coming months. In particular, the bank
noted that global food and commodity prices in April showed signs
of stabilisation. Indeed, lower food prices were the key factor
contributing to the m/m deflation seen in April, while they still
posted by far the fastest gain in annual comparison. The CBA projects
that inflation will ease back to the target range of 4.5% with a band
of 1.5 percentage points on either side within the second half of 2011.
Significance:The monthly deflation in April as well as the clear
moderation in the annual inflation rate are very welcome. The recent
world market price developments and the consequent easing of Armenian
inflation also somewhat alleviate fears that rapid price gains might
even lead to some social unrest in Armenia, where good costs still
play a very large role in the consumption basket. The expectations
of easing--even if still notable--inflation pressures seem warranted.
However, y/y inflation still remains significantly above target,
and thus, rapid price gains still remain a source for concern.
BYLINE: Venla Sipila
Global Insight
May 11, 2011
The Central Bank of Armenia (CBA) has kept its refinancing rate
stable at 8.5% in May, Reuters reports. This follows policy rate
increases every month since February (see Armenia: 13 April 2011:
Far-Above-Target Inflation Spurs Further Interest Rate Hike in
Armenia). The CBA took this decision after consumer prices in April
had retreated by 0.2% from March, whereas annual inflation eased
to 8.9% from 11.5% in March, according to the Armenian National
Statistical Service. The central bank expects inflation pressures
to moderate further in the coming months. In particular, the bank
noted that global food and commodity prices in April showed signs
of stabilisation. Indeed, lower food prices were the key factor
contributing to the m/m deflation seen in April, while they still
posted by far the fastest gain in annual comparison. The CBA projects
that inflation will ease back to the target range of 4.5% with a band
of 1.5 percentage points on either side within the second half of 2011.
Significance:The monthly deflation in April as well as the clear
moderation in the annual inflation rate are very welcome. The recent
world market price developments and the consequent easing of Armenian
inflation also somewhat alleviate fears that rapid price gains might
even lead to some social unrest in Armenia, where good costs still
play a very large role in the consumption basket. The expectations
of easing--even if still notable--inflation pressures seem warranted.
However, y/y inflation still remains significantly above target,
and thus, rapid price gains still remain a source for concern.