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ARMENIA KEEPS INTEREST RATE STABLE AFTER INFLATION ENDS 2011 WITHIN TARGET RANGE
BY: Venla Sipila
Global Insight
January 11, 2012
The Central Bank of Armenia (CBA) has in its January meeting decided
to maintain its key refinancing rate unchanged at 8.0%, Reuters
reports. This was the fourth consecutive month in which the CBA
has refrained from rate revisions, after the policy rate had been
cut in September, after consumer price inflation had eased to the
target range. The latest interest rate decision came after December
inflation data from the Armenian National Statistical Service had
shown that prices ended 2011 with an increase of 4.7% year-on-year
(y/y) in December.
While annual inflation remained virtually stable compared with the
November rate of 4.8% y/y, month-on-month (m/m) inflation in December
accelerated to 2.5%. These rates brought the annual average inflation
rate for 2011 as a whole to 7.7%, just marginally above our latest
forecast of 7.6%. Food prices posted the highest again in 2011 as a
whole and also in December, the respective growth rates reported at
12.3% and 6.1% y/y. Meanwhile, prices of non-food goods rose by 3.4%
on average last year, while ending the year with an annual gain of
4.3%. Finally, service prices increased by 3.6% on average last year,
and by 2.9% cumulatively until December.
Significance:Armenian inflation ended 2011 comfortably within the
CBA's target range of 1.5 percentage points on either side of 4%. A
key factor in suppressing inflation pressures was the recovery of
agricultural harvest, which prevented food prices from rising faster.
Demand pressures at present remain fairly weak, and inflation should
remain well in the target range in the coming months and quarters.
However, this outlook comes with major uncertainty. Global commodity
prices still remain very high, at the same time as risks to the
overall global economy signal threat to important remittance inflows to
Armenia. Should these markedly deteriorate, the potential for inflation
pressures from the exchange rate channel would increase, as a weaker
dram would lift the cost of imports measured in domestic currency.
From: A. Papazian
BY: Venla Sipila
Global Insight
January 11, 2012
The Central Bank of Armenia (CBA) has in its January meeting decided
to maintain its key refinancing rate unchanged at 8.0%, Reuters
reports. This was the fourth consecutive month in which the CBA
has refrained from rate revisions, after the policy rate had been
cut in September, after consumer price inflation had eased to the
target range. The latest interest rate decision came after December
inflation data from the Armenian National Statistical Service had
shown that prices ended 2011 with an increase of 4.7% year-on-year
(y/y) in December.
While annual inflation remained virtually stable compared with the
November rate of 4.8% y/y, month-on-month (m/m) inflation in December
accelerated to 2.5%. These rates brought the annual average inflation
rate for 2011 as a whole to 7.7%, just marginally above our latest
forecast of 7.6%. Food prices posted the highest again in 2011 as a
whole and also in December, the respective growth rates reported at
12.3% and 6.1% y/y. Meanwhile, prices of non-food goods rose by 3.4%
on average last year, while ending the year with an annual gain of
4.3%. Finally, service prices increased by 3.6% on average last year,
and by 2.9% cumulatively until December.
Significance:Armenian inflation ended 2011 comfortably within the
CBA's target range of 1.5 percentage points on either side of 4%. A
key factor in suppressing inflation pressures was the recovery of
agricultural harvest, which prevented food prices from rising faster.
Demand pressures at present remain fairly weak, and inflation should
remain well in the target range in the coming months and quarters.
However, this outlook comes with major uncertainty. Global commodity
prices still remain very high, at the same time as risks to the
overall global economy signal threat to important remittance inflows to
Armenia. Should these markedly deteriorate, the potential for inflation
pressures from the exchange rate channel would increase, as a weaker
dram would lift the cost of imports measured in domestic currency.
From: A. Papazian