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INFLATION ACCELERATES AS ARMENIAN CENTRAL BANK LEAVES INTEREST RATES STABLE
Global Insight
November 7, 2012
BYLINE: Venla Sipila
The Central Bank of Armenia (CBA) has left its refinancing interest
rate at 8% in its November meeting, ARKA News reports. The key policy
rate has remained unchanged since September 2011. The latest inflation
data from the Armenian National Statistical Service show that consumer
prices in October increased by 3.4% year-on-year (y/y). While this
result marks clear acceleration from the annual gain of 2.5% y/y
in both September and August, it still leaves inflation comfortably
within the target range of 4% +/- 1.5 percentage points.
Month-on-month (m/m) inflation accelerated to 1.2%, following a
rate of 0.8% m/m in September, and m/m deflation rates prior to this
since February.
Food prices led the acceleration in m/m price growth. The CBA board
expects annual inflation to climb closer to the central target in the
coming months, but expects inflation pressures to remain moderate. The
uncertainty in the external environment should keep suppressing global
demand and thus also external inflation pressures, while the relatively
tight domestic fiscal policy is also having moderating impact. On the
other hand, domestic private consumption is in any case strengthening,
while cost side inflation pressures are also likely to result from
high international wheat prices. External inflation risks also mark
some threat of rising fuel import prices. Finally, while leaving the
refinancing rate stable, the CBA board opted to increase its deposit
rate by 50 basis points to 6.50%, while it lowered the Lombard repo
rate by 50 basis points, taking it to 9.50%. These decisions continue
the decent policy whereby the CBA seeks to narrow the marking between
the deposit and Lombard rates, in order to constrain volatility in
interbank markets.
Significance:The latest Armenian inflation figures are not surprising,
nor is the interest rate decision. Armenian inflation for a period
earlier this year remained perhaps surprisingly modest taking into
account the high global food prices. This was partly explained by the
reasonably good domestic harvest. However, sings of intensified food
price pressures have now emerged. Inflation risks also arise from
the exchange rate channel - there is s risk that the muted global
growth and uncertainty will suppress private capital inflows, also
resulting in a weaker dram, and this would push up domestic prices
of imported food and other goods. In any case, our baseline scenario
sees Armenian inflation remaining within target in the next quarters.
Global Insight
November 7, 2012
BYLINE: Venla Sipila
The Central Bank of Armenia (CBA) has left its refinancing interest
rate at 8% in its November meeting, ARKA News reports. The key policy
rate has remained unchanged since September 2011. The latest inflation
data from the Armenian National Statistical Service show that consumer
prices in October increased by 3.4% year-on-year (y/y). While this
result marks clear acceleration from the annual gain of 2.5% y/y
in both September and August, it still leaves inflation comfortably
within the target range of 4% +/- 1.5 percentage points.
Month-on-month (m/m) inflation accelerated to 1.2%, following a
rate of 0.8% m/m in September, and m/m deflation rates prior to this
since February.
Food prices led the acceleration in m/m price growth. The CBA board
expects annual inflation to climb closer to the central target in the
coming months, but expects inflation pressures to remain moderate. The
uncertainty in the external environment should keep suppressing global
demand and thus also external inflation pressures, while the relatively
tight domestic fiscal policy is also having moderating impact. On the
other hand, domestic private consumption is in any case strengthening,
while cost side inflation pressures are also likely to result from
high international wheat prices. External inflation risks also mark
some threat of rising fuel import prices. Finally, while leaving the
refinancing rate stable, the CBA board opted to increase its deposit
rate by 50 basis points to 6.50%, while it lowered the Lombard repo
rate by 50 basis points, taking it to 9.50%. These decisions continue
the decent policy whereby the CBA seeks to narrow the marking between
the deposit and Lombard rates, in order to constrain volatility in
interbank markets.
Significance:The latest Armenian inflation figures are not surprising,
nor is the interest rate decision. Armenian inflation for a period
earlier this year remained perhaps surprisingly modest taking into
account the high global food prices. This was partly explained by the
reasonably good domestic harvest. However, sings of intensified food
price pressures have now emerged. Inflation risks also arise from
the exchange rate channel - there is s risk that the muted global
growth and uncertainty will suppress private capital inflows, also
resulting in a weaker dram, and this would push up domestic prices
of imported food and other goods. In any case, our baseline scenario
sees Armenian inflation remaining within target in the next quarters.