Armenian Central Bank keeps refinancing rate unchanged at 6.75%

At its meeting today, the Board of the Central Bank of Armenia decided to keep the key policy rate (refinancing rate) unchanged at 6.75%, the Central Bank said in a press release.

According to the Central Bank, the annual CPI inflation approached the target level, reaching 2.5% in February 2025. Meanwhile, core inflation has also remained at low levels, at 1.5% year-over-year in February, the Central Bank said. 

"Since the beginning of the year, the risks of slower economic growth and accelerated inflation in global markets and Armenia’s key partner countries have significantly increased.  In particular, the risks of price increases and potential disruptions to supply chains in international commodity markets and key partner countries have intensified, driven by growing tensions in international trade relations and ongoing geopolitical uncertainties. At the same uncertainty related to fiscal expansion in US over the medium term and resulting increase in debt and long term interest rates increased significantly recently. At the same time, sticky prices in key trading partner economies continue to remain relatively elevated, while labor market conditions continue to be relatively tight.  In this context, key trading partner central banks will continue to gradually lower policy rates at a slower pace than previously expected, while still maintaining a relatively tight stance in the near term. Consequently, weak deflationary effects from the external sector on the Armenian economy continue to persist. Economic activity in Armenia remained close to estimated sustainable long term growth rate, continuing to be largely driven by meaningful growth in construction, services and trade. The latter has been affected by certain short-term factors, posing significant uncertainty with respect to the sustainability of economic growth and its long-term outlook, as well as the strength of domestic demand and consumption conditions. External demand for services continues to decline, while the overall demand environment is assessed as neutral from an inflationary perspective. In this context, labor market conditions continue to cool, as reflected in the gradual stabilization of wage growth, non-traded sticky price inflation and inflation expectations. At the same time, risks for demand pressures stemming from fiscal policy continue to persist.  In order to manage possible risks stemming from conditions of high uncertainty, the Board considers multiple scenarios during its deliberations. On the one hand, the Board discussed scenarios where possible underlying developments would require a higher path for the policy rate relative to current market expectations to ensure price stability. This includes scenarios related to including those related to the geopolitical developments, the risk premium of Armenia, and the resulting macroeconomic effects. On the other hand, the Board discussed scenarios related to the risks of prolonged uncertainty over US economic policy, the decline in global economic confidence, and the resulting risks of reduced growth and weakened demand in Armenia. This would imply a more rapid and aggressive downward path for the policy rate than what is currently priced in markets in order to sustainably bring inflation back to target in the medium-term horizon.  As a result, seeking to minimize the losses that could stem from these and other scenarios materializing, and balancing the aforementioned risks in both directions, the Board finds it appropriate to continue to gradually ease the policy stance. The Board resolutely affirms its commitment to adopting the appropriate policy actions and strategy to ensure the price stability objective of 3% inflation in the medium term.  The Board resolutely affirms its commitment to adopting the appropriate policy actions and strategy to ensure the price stability objective of 3 % inflation in the medium term," the Central Bank added.