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ARMENIAN INTEREST RATE REMAINS STABLE AS M/M DEFLATION PERSISTS
BY: Venla Sipila
Global Insight
June 7, 2012
The Central Bank of Armenia (CBA) has decided to leave its refinancing
interest rate unchanged at 8.0% in June, ARKA News reports. The central
bank has now kept the policy rate at this level since September 2011,
when a 50 basis point cut was enacted. The decision was taken as
already very meagre inflation pressures further subsided.
According to the National Statistical Office, Armenian consumer prices
in May only climbed by 0.5% year-on-year (y/y), following growth of
1.9% y/y in April and 2.2% y/y in March. Notably, food prices in May
fell by 1.6% y/y and by 2.6% month-on-month (m/m). The total consumer
price index in May retreated by 1.3% from April, following deflation
of 0.6% m/m posted in April. Consumer prices have now increased by
0.8% since the beginning of the year, while the annual January-May
inflation rate was reported at 2.5%. The CBA indicated that it may
cut the interest rate in the future, if inflation continues to ease.
Significance:The persistent m/m deflation and the y/y deflation
in April continue to clearly demonstrate the significant impact on
Armenian inflation from the price of food. The moderating cost of
food has now resulted in deflation also in annual terms. The annual
average rate for this year so far coincides with the lower bound
of the CBA's target range of 4% with variation of 1.5 percentage
points on either side. Armenia's inflation outlook is increasingly
benign. Demand pressures are weak, and the recent downward correction
in international commodity prices also restricts pressures from the
cost side, already suppressed due to the deal with Russia not to
increase gas import prices this year. Inflation is likely to remain
well within target in the coming months and quarters. Risks to this
forecast arise from agricultural performances, since a weak harvest
would quickly push up food prices. In addition, there is a risk that
the overall uncertainty related to the persisting Eurozone debt crisis
will result in further weakening of the dram/USD exchange rate. Any
major dram depreciation would likely quickly be further reflected in
upward inflation pressures.
From: Baghdasarian
BY: Venla Sipila
Global Insight
June 7, 2012
The Central Bank of Armenia (CBA) has decided to leave its refinancing
interest rate unchanged at 8.0% in June, ARKA News reports. The central
bank has now kept the policy rate at this level since September 2011,
when a 50 basis point cut was enacted. The decision was taken as
already very meagre inflation pressures further subsided.
According to the National Statistical Office, Armenian consumer prices
in May only climbed by 0.5% year-on-year (y/y), following growth of
1.9% y/y in April and 2.2% y/y in March. Notably, food prices in May
fell by 1.6% y/y and by 2.6% month-on-month (m/m). The total consumer
price index in May retreated by 1.3% from April, following deflation
of 0.6% m/m posted in April. Consumer prices have now increased by
0.8% since the beginning of the year, while the annual January-May
inflation rate was reported at 2.5%. The CBA indicated that it may
cut the interest rate in the future, if inflation continues to ease.
Significance:The persistent m/m deflation and the y/y deflation
in April continue to clearly demonstrate the significant impact on
Armenian inflation from the price of food. The moderating cost of
food has now resulted in deflation also in annual terms. The annual
average rate for this year so far coincides with the lower bound
of the CBA's target range of 4% with variation of 1.5 percentage
points on either side. Armenia's inflation outlook is increasingly
benign. Demand pressures are weak, and the recent downward correction
in international commodity prices also restricts pressures from the
cost side, already suppressed due to the deal with Russia not to
increase gas import prices this year. Inflation is likely to remain
well within target in the coming months and quarters. Risks to this
forecast arise from agricultural performances, since a weak harvest
would quickly push up food prices. In addition, there is a risk that
the overall uncertainty related to the persisting Eurozone debt crisis
will result in further weakening of the dram/USD exchange rate. Any
major dram depreciation would likely quickly be further reflected in
upward inflation pressures.
From: Baghdasarian