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ARMENIA'S CENTRAL BANK RAISES INTEREST RATE AGAIN
Financial Services Monitor Worldwide
February 11, 2015 Wednesday
The Central Bank of Armenia (CBA) raised its benchmark interest rate
for the third time in less than two months on Tuesday despite its
assurances that the domestic financial system is stabilizing after
sharp exchange rate fluctuations observed late last year.
During a meeting of its governing board, the CBA set the refinancing
rate at 10.5 percent, up by 1 percentage point.
The minimum cost of borrowing in Armenia stood at 6.75 percent as
recently as in December. It was raised to 8.5 percent on December
23 following a considerable depreciation of the national currency,
the dram, resulting from falling remittances from Russia. Although
the dram's exchange rate remained stable in the following weeks,
the refinancing rate reached 9.5 percent on January 21, with the CBA
citing "high inflationary expectations" fuelled by the weaker dram.
Explaining the latest rate increase, the CBA said that consumer
prices in the country went up by an average of 2.5 percent in January,
translating into an annual inflation rate of 4.3 percent. It forecast
that inflation will rise further in the coming months before easing
by the end of the year.
In a statement, the bank said that the effects of the exchange rate
fluctuations, which disrupted wholesale trading and banking operations
in December, are now being "gradually neutralized."
Some analysts said the fresh rate hike means that the authorities in
Yerevan are still worried about a renewed weakening of the Armenian
currency. "Since the Central Bank's main mission is to keep inflation
under control, it is artificially raising the cost of lending in
order to prevent the dram's depreciation," said Vahagn Khachatrian,
an economist affiliated with the opposition Armenian National
Congress party.
Armenian commercial banks also seem to lack confidence in the strength
of the dram. Many of them are said to have significantly limited
lending or even frozen it altogether.
Gevorg Gharibian, a farmer from the southern Armavir province, on
Tuesday claimed to have been unable to secure a bank loan worth only
200,000 drams ($420). He said he has approached five banks and been
turned down by all of them on the grounds that the dram's exchange
rate is now unpredictable.
"They know that I repaid 3.5 million drams in loans last year but
still won't lend me 200,000 drams," Gharibian told RFE/RL's Armenian
service (Azatutyun.am).
"We have stopped extending loans," confirmed an official at one of
those banks.
"We do accept loan applications. It's just that the consideration
process now takes a bit longer," insisted a representative of another
bank. 2015 Global Data Point.
Financial Services Monitor Worldwide
February 11, 2015 Wednesday
The Central Bank of Armenia (CBA) raised its benchmark interest rate
for the third time in less than two months on Tuesday despite its
assurances that the domestic financial system is stabilizing after
sharp exchange rate fluctuations observed late last year.
During a meeting of its governing board, the CBA set the refinancing
rate at 10.5 percent, up by 1 percentage point.
The minimum cost of borrowing in Armenia stood at 6.75 percent as
recently as in December. It was raised to 8.5 percent on December
23 following a considerable depreciation of the national currency,
the dram, resulting from falling remittances from Russia. Although
the dram's exchange rate remained stable in the following weeks,
the refinancing rate reached 9.5 percent on January 21, with the CBA
citing "high inflationary expectations" fuelled by the weaker dram.
Explaining the latest rate increase, the CBA said that consumer
prices in the country went up by an average of 2.5 percent in January,
translating into an annual inflation rate of 4.3 percent. It forecast
that inflation will rise further in the coming months before easing
by the end of the year.
In a statement, the bank said that the effects of the exchange rate
fluctuations, which disrupted wholesale trading and banking operations
in December, are now being "gradually neutralized."
Some analysts said the fresh rate hike means that the authorities in
Yerevan are still worried about a renewed weakening of the Armenian
currency. "Since the Central Bank's main mission is to keep inflation
under control, it is artificially raising the cost of lending in
order to prevent the dram's depreciation," said Vahagn Khachatrian,
an economist affiliated with the opposition Armenian National
Congress party.
Armenian commercial banks also seem to lack confidence in the strength
of the dram. Many of them are said to have significantly limited
lending or even frozen it altogether.
Gevorg Gharibian, a farmer from the southern Armavir province, on
Tuesday claimed to have been unable to secure a bank loan worth only
200,000 drams ($420). He said he has approached five banks and been
turned down by all of them on the grounds that the dram's exchange
rate is now unpredictable.
"They know that I repaid 3.5 million drams in loans last year but
still won't lend me 200,000 drams," Gharibian told RFE/RL's Armenian
service (Azatutyun.am).
"We have stopped extending loans," confirmed an official at one of
those banks.
"We do accept loan applications. It's just that the consideration
process now takes a bit longer," insisted a representative of another
bank. 2015 Global Data Point.