YEREVAN, AUGUST 1, NOYAN TAPAN. At the July 31 sitting, the Central Bank of Armenia (CBA) Board made a decision to raise the refinancing (repo) interest rate by 0.25 percentage points to 4.25%, presenting this step as a measure aimed at neutralizing the inflation risks. This is a second change of such a kind this year after the refinancing rate was raised from 3.5% to 4% in January. According to the CBA Board, the registration of a two-digit economic growth is entirely realistic under conditions of the continuing tendencies of the economic development, however, the risks of deviating from the target index of 3% inflation remain, and "their manifestation is becoming more likely". According to a CBA press release, there are risks that international prices of raw materials, particularly oil products and metals may grow above the expected level, which is mainly conditioned by a possible depreciation of the US dollar and further straining of the geopolitical situation. A growth in the prices of grain imported into Armenia is also possible in connection with an expected harvest decline in Russia and Ukraine. Most proportional growth in the incomes of the construction and service sectors at a higher rate than envisaged may also create risks of exceeding the target inflation index. The anticipated considerable budget expenditures until late 2006 may contribute to inflation as well, which will become evident in the first half of 2007. Yet another factor is the increase in the water supply and sewerage tariffs on July 1, 2006. Therefore, the CBA Board does not exclude another change in the interest rates in the coming months.

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