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ARMENIAN CENTRAL BANK LEAVES INTEREST RATES STABLE AS INFLATION REACHES LOWER END OF TARGET RANGE
by: Venla Sipila
Global Insight
September 5, 2012
The Central Bank of Armenia has announced that it will keep its key
policy interest rate unchanged at 8.0% in August, ARKA News reports.
The refinancing rate has now remained stable since September 2011. The
decision follows August inflation data from the National Statistics
Agency showing that consumer prices last month increased by 2.5%
year-on-year (y/y), the annual inflation rate thus just reaching
the lower boundary of the CBA's target range. In July, prices had
climbed by 2.3% y/y, following a gain of just 0.7% y/y in June. In
month-on-month (m/m) comparison, prices fell by 0.4% in August. Food
prices, in particular, increased by 1.7% y/y, while they fell by 0.9%
m/m. The CBA noted that inflation pressures continue to be suppressed
by weak global demand, whereas, on the other hand, rising grain prices
have the opposite impact. The central bank expects inflation to remain
within target for the next 12 months.
Significance:Armenian inflation has finally returned to the target
range, set at 2.5 percentage points on either side of the central
rate of 4%. Although food price inflation only returned to positive
territory in annual terms in July, and the cost of food still fell
m/m in August, the clearest inflation risks at present originate
from this source, as is typical in Armenia. Food price inflation
is indeed expected to strengthen in the coming quarters. Regional
harvests play a large role in determining food prices, and weakness
of these marks higher inflation pressures. Armenia also imports food
products, and any major increase in the cost of these would show in
headline inflation rates. Import price developments are subject to
risks also related to exchange rate developments. In particular,
the uncertain outlook for remittance inflows signals significant
exchange rate risks, and any marked dram deprecation would fairly
quickly transfer further to inflation.
by: Venla Sipila
Global Insight
September 5, 2012
The Central Bank of Armenia has announced that it will keep its key
policy interest rate unchanged at 8.0% in August, ARKA News reports.
The refinancing rate has now remained stable since September 2011. The
decision follows August inflation data from the National Statistics
Agency showing that consumer prices last month increased by 2.5%
year-on-year (y/y), the annual inflation rate thus just reaching
the lower boundary of the CBA's target range. In July, prices had
climbed by 2.3% y/y, following a gain of just 0.7% y/y in June. In
month-on-month (m/m) comparison, prices fell by 0.4% in August. Food
prices, in particular, increased by 1.7% y/y, while they fell by 0.9%
m/m. The CBA noted that inflation pressures continue to be suppressed
by weak global demand, whereas, on the other hand, rising grain prices
have the opposite impact. The central bank expects inflation to remain
within target for the next 12 months.
Significance:Armenian inflation has finally returned to the target
range, set at 2.5 percentage points on either side of the central
rate of 4%. Although food price inflation only returned to positive
territory in annual terms in July, and the cost of food still fell
m/m in August, the clearest inflation risks at present originate
from this source, as is typical in Armenia. Food price inflation
is indeed expected to strengthen in the coming quarters. Regional
harvests play a large role in determining food prices, and weakness
of these marks higher inflation pressures. Armenia also imports food
products, and any major increase in the cost of these would show in
headline inflation rates. Import price developments are subject to
risks also related to exchange rate developments. In particular,
the uncertain outlook for remittance inflows signals significant
exchange rate risks, and any marked dram deprecation would fairly
quickly transfer further to inflation.