Armenia’s central bank lowered its key policy rate for the second time this year and for the fourth time since February 2019 to boost monetary stimulus as the coronavirus will have a negative impact on the country’s economy.
The Central Bank of Armenia (CBA) cut its refinancing rate by another 25 basis points to 5.0 percent and has now cut it by 50 points this year following a cut in March.
CBA has been steadily lowering its interest rates since August 2015 when it rapidly cut rates 12 times by 450 points until the rate hit 6.0 by February 2017.
The central bank then paused for two years until February 2019 when it returned to the path of easing and has now cut the rate four times since then by a total of 100 basis points.
“Given the current and projected external and internal developments, the weakening demand, the current low inflation environment and the stabilization of financial markets, the CB board considers it expedient to increase the amount of monetary stimulus by reducing the refinancing rate,” CBA said.
“The council also considers that in the current situation it will be necessary to maintain the stimulus position in the medium term,” CBA said, adding inflation is expected to remain low.
The predominant risk is that inflation will deviate from its expected trajectory in a downward direction, CBA said, adding it “is ready to adjust the policy accordingly as needed.”
Economic activity in almost all sectors of Armenia’s declined in March from last year and this decline will deepen in the second quarter due to reduced supply and demand, the bank said, adding aggregate demand will remain weak in the future though this will be mitigated to some extent by the government’s stimulus.
At the same time, the uncertainties over the timing of the contagion and the economic recovery has risen to some extent and only after this eases, will it be possible to assess the longer-term changes in the structure and prospects of the country’s economy.
“It is estimated that all of this will continue to have a deflationary effect on the Armenian economy,” the central bank said, adding
Armenia’s inflation rate was negative for the second consecutive month in March at minus 0.1 percent after minus 0.5 percent in February.
