YEREVAN, APRIL 30, ARMENPRESS. At a meeting on April 30, the Council of the Central Bank decided to reduce the interest rate by 0.25 percentage points, setting it at 8.25%. The Board believes that a lower policy rate is necessary to achieve the 4% inflation target and price stability in the medium term, the Central Bank of Armenia said.

In the first quarter of 2024, 12-month inflation continued to decline, reaching 1.2% in March. Core inflation also continued to decrease, at -0.7% year-over-year in March.

In the first quarter of 2024, risks of slowing economic growth in the world and in the key trading partner countries of Armenia continue to persist. Global inflation continues to slow, but prices for high-value goods and services in partner countries remain relatively high. At the same time, the extremely overheated situation on the labor market in partner countries continues to support high demand. The geopolitical tensions that have arisen in the Middle East since the beginning of the year continue to pose certain risks in terms of further increases in global energy prices and possible disruption of supply chains. In this context, it is likely that partner country central banks, in particular the US Federal Reserve System, will maintain tight monetary conditions for a longer period of time. As a result, weak deflationary effects on the Armenian economy are expected from the external sector.

In the first quarter of 2024, high economic activity remained in Armenia, largely facilitated by significant growth in trade and industry. It continues to be influenced by several short-term factors that contain significant uncertainty in terms of the sustainability of economic growth and the long-term outlook. External demand for domestic services is weakening, while domestic demand continues to be supported by strong growth in private investment. At the same time, the risks of additional stimulation of demand through fiscal policy remain significant. The low inflationary environment is supported by weak deflationary effects from the external sector, monetary policy implemented in previous years, and the appreciation of the dram. At the same time, an increase in labor supply somewhat eases conditions on the labor market, which is reflected in lower wages, inflation of expensive services and inflation expectations.

In an environment of high uncertainty, given the commitment to price stabilization, the Board is considering several scenarios in its deliberations. On the one hand, the Board discussed scenarios in which major events, including tightening monetary conditions in partner countries, as well as uncertainty regarding risk premiums and neutral interest rates, require a more aggressive response and policy than market expectations in pursuit of for stability to manage associated risks. On the other hand, the Board considered scenarios in which possible economic developments, including continued expansion of labor supply and rapid weakening of demand, would lead to prolonged low inflation. This implies a faster and larger policy rate cut than market expectations to stabilize inflation around target over the medium term.

As a result, balancing the risks in the two above areas, the Board of the Central Bank of Armenia has  decided to continue gradual easing at a slow pace. The Board will continue to monitor economic development scenarios and is ready to take appropriate measures to ensure the 4 percent inflation target and price stability in the medium term.