ArmInfo. The Board of the Central Bank of Armenia is convinced that in the current situation, when various sectors of the economy are suffering significant disproportionate losses, in order to restore aggregate demand, along with the stimulating effect of monetary conditions, a key role is assigned to a more stimulating fiscal policy.
Taking into account the continuing low inflationary environment, as well as the prolonged recovery of external and domestic demand, the Central Bank Board considers it expedient to continue easing monetary conditions (by another decrease in the refinancing rate on September 15 from 4.5% to 4.25%), assessing the need to maintain the stimulating effect in the medium term. As a result, in the medium term, inflation will gradually increase and by the end of the forecast horizon will stabilize close to the target threshold. Meanwhile, in August 2020 a decrease in consumer prices was recorded by 0.1% (against deflationary 0.4% in August 2019), as a result of which y-o-y inflation (compared to August 2019) increased to 1.8% (from inflationary 0.6% a year earlier).
During the Q3, a certain recovery of the global economy has been recorded in the external sector, however, it is estimated that the continuing high degree of uncertainty in connection with the final overcoming of the coronavirus pandemic will significantly restrain and delay the recovery of gross demand and economic activity in Armenia's main partner countries. In such conditions, the central banks of the partner countries will continue to pursue a stimulating monetary policy. As a result, despite the continued weak inflationary environment in the commodity markets, the CBA Board considers that there will be no inflationary impact on the Armenian economy from the external sector.
The Central Bank Board notes that in the first half of 2020, private spending have decreased more than estimated, the restraining effect of which on domestic demand was partially mitigated by the government's implementation of a stimulating fiscal policy.
According to the Central Bank, due to the indicated actual development, the continuing uncertainty of the timing of overcoming the pandemic and in these conditions, the cautious consumer and investment behavior of society, in the coming quarters, domestic demand and economic activity will recover at a slower pace than expected.
The Central Bank Board believes that the risks of inflation deviation from the planned rate are generally balanced, and if they occur, it is ready to react accordingly to ensure price stability in the medium term. To note, on September 15 the Board of the Central Bank of the Republic of Armenia lowered the refinancing rate by 0.25 percentage points - to 4.25%, in accordance with which the rates on lombard repo were also reduced - from 6% to 5.75%, and on deposits borrowed from banks - from 3% to 2.75%. Prior to that, the refinancing rate was reduced by the Central Bank three times this year (March 17, April 28 and June 16), and twice by 0.25 percentage points and the third by 0.5 p.p. - from 5.5% to 4.5% in total.
