CBA Board considers it expedient to reduce gradually
interest rates
21-01-2009 19:00:00 | Armenia | Economy
YEREVAN, JANUARY 21, NOYAN TAPAN. At the January 13
sitting, the Board of the Central Bank of Armenia (CBA) made a
decision to reduce the CBA refinancing rate by 0.25% to 7%. The
interest rates of attracted deposits and lombard credits were
established at 4% and 10% respectively.
The decision was made based on the situation report, which
assessed, by using new information, the forecasts about the
current situation, the risks and the new macroeconomic forecasts
as well the possible risks related to these forecasts. The
situation report also contained new results received by using
the CBA quarterly forecast model, and these results continue
bearing evidence of the tendencies to a deepening deflation
environment.
The CBA PR Service reported that only 0.1% inflation was
recorded in December on November 2008, as a result of which the
12-month inflation fell by 1.4 percentage points and made 5.2%,
ensuring the target level of inflation. The fall in inflation
rates was mainly conditioned by the continuous fall of prices in
international markets of goods and raw materials because of the
global recession and became apparent in domestic markets of
these goods as well. Following the fall in November, a 15% fall
in diesel fuel prices and a 3.5% fall in gasoline prices was
recorded in Armenia in December. On the whole, the inflation
recorded based on the results of the year was due to a growth in
prices of food commodities (including alcoholic drinks and
cigarettes) - 3.3%, nonfood commodities - 0.2% and a growth in
tariffs of services - 11.4%.
The members of the CBA Board agreed that the external
inflation pressures continued to weaken due to the tendencies to
a decline in global economic growth rates and became apparent in
the domestic markets of food and nonfood commodities, resulting
in a considerable fall in overall inflation rates. In the
opinion of the CBA Board, although the uncertainty of foreign
and domestic economic developments has increased, the
clarifications to the forecasts on economic growth in foreign
countries, especially Armenia's trade partners, show that the
external deflation environment continues to remain. Under these
conditions it is expected that in mid 2009 inflation will form
in the lower part of the target interval.
The CBA Board discussed the risks concerning a fall or
growth of forecast inflation. As a result, the risks towards a
decline were considered as prevailing in the overall balance of
risks.
The Board also discussed in detail the possible impact of
consequences of the global economic crisis on domestic economic
developments in 2009. It was mentioned that the prospects of
external demand continue to become worse, which will have its
impact, especially on the export sector of domestic economy,
leading to further decline in production volumes in the
exporting branches. The impact of the global economic crisis
will also be seen in construction because of declining inflow of
financial resources from abroad and the delay in financing of
some investment programs. The slowing rates of inflow in the
form of noncommercial transfers will be conditioned by Russian
economy's capacities to overcome the consequences of the
economic crisis. At the same time, it was mentioned that the
forecast domestic economic developments will depend very much on
the scale and directions of the additional economic programs
that the government plans to implement.
Underlining the importance of the situation that has formed
in conditions of the global financial and economic crisis, the
members of the CBA Board focused on two possible scenarios of
mitigating the monetary and credit conditions: 0.25% and 0.5%
reduction of the refinancing rate. In this connection the Board
has repeatedly stressed the necessity of conduting such a
monetary and credit policy that will allow to combine
efficiently the tasks of ensuring price stability and financial
stability. There were arguments that the current interest rates
continue being attractive for capital inflow. At the same time,
a sharp reduction of interest rates at this moment is likely not
to have desirable consequences for interest rates of the
interbank market, therefore for the monetary and credit transfer
chain. The Board attached great importance to an increase of
credits for implementation of measures and to improvement of
credit accessibility. On the other hand the continuous fall in
inflation rates and the existence of risks towards a fall was
put forward as the main argument for sharper reduction in
interest rates. As a result, the CBA Board considered the
version of gradully reducing the interest rates as most
well-founded.