YEREVAN

Armenia’s central bank raised its key refinancing rate to 7.75 percent from 7.25 percent to curb rising inflation, which went well beyond the target range.

The Lombard repo rate was raised to 9.25 percent from 8.75 percent and the deposit rate – to 6.25 percent from 5.75 percent.

In September, the central bank raised the key refinancing rate by 0.25 percent to 7.25 percent, the fifth increase since February, when it raised it by 0.25 percent. In November the rate was kept unchanged.

Consumer prices in Armenia were up 9.7 percent year-on-year in November after 9.1 percent inflation in October. Inflation in November was 1.7 percent compared to a month earlier when the consumer price index rose by 0.7 percent. In January-November, annual inflation was 7.1 percent year-on-year. Armenia’s government projects annual inflation in a range of 2.5-5.5 percent in 2021.

Last month, the central bank governor Martin Galstyan did not rule out the refinancing rate increase amid a sharp rise in annual inflation

“We estimate that over the next year, most likely at the end of the second quarter, we will get closer to our target,” Galstyan said.

Galstyan said that despite the persistence of inflationary pressures in the external sector and in the Armenian economy, the central bank assessed that “the consistent tightening of monetary conditions aimed at the future since the end of last year had a sufficient impact on the settlement of outstripping demand, curbing inflation and ensuring the goal inflation in the medium term”.

Though Armenia reported rapid growth in recent years, a year of restrictions to curb the spread of  COVID-19 and a six-week conflict between Azerbaijan and ethnic Armenian forces over the Nagorno-Karabakh region and the surrounding territories have taken their toll on its economy. In November 2020, Armenia accepted a Russian-brokered ceasefire to end the conflict which secured territorial gains for Azerbaijan. The country’s economy contracted by 7.6 percent in 2020, mainly reflecting a decline in services and trade.

The economy started to show its first signs of recovery in May this year. That led to the revision of the economic growth forecast by the government to almost twice the rate it previously predicted – to 6 percent from 3.2 percent.

Gross domestic product (GDP) shrank 3.3 percent year-on-year in the first quarter of 2021, but grew by 13.2 percent year-on-year in April-June and by 17.4 percent compared to January-March of this year.

The World Bank predicts 6.1 percent growth in 2021 and 4.8 percent in 2022, while the International Monetary Fund projects growth this year at 6.5 percent and 4.5 percent in 2022.

In May, Fitch Ratings affirmed Armenia’s long-term foreign-currency issuer default rating (IDR) at ‘B+’ with a stable outlook.

Fitch Ratings said in July that Armenia’s economy would experience a moderate recovery this year and next as the country returned to growth after the COVID-19 pandemic and the flash war with Azerbaijan.

GDP will expand 3.2 percent in 2021 and 4.0 percent in 2022, the rating agency said, adding that while economic activity was returning, some industries, such as banking, still continued to be affected by the recent downturn.

Fitch said that Armenia also had a robust macroeconomic and fiscal policy framework, and credible commitment to reform, both of which were underpinned by the IMF stand-by arrangement.