Yerevan, June 17 – The Central Bank of Armenia (CBA) today announced its decision to keep the refinancing rate unchanged at 6.50%. This move reflects the Board’s assessment of current macroeconomic developments and the need to balance various risks impacting the Armenian economy. The 12-month inflation rate in Armenia continued to exceed the target level in the second quarter of 2026, reaching 4.2% in May, with the 12-month core inflation increasing to 5.1%.
Global Economic Headwinds and Domestic Resilience
According to the CBA, the global economy in the second quarter of 2026 continued to experience weakening demand, with a deteriorating outlook due to geopolitical uncertainties and the prolonged high prices of energy carriers. Risks associated with a higher trajectory of the US public debt and, consequently, prolonged high long-term interest rates have increased. Furthermore, the risks of weakening medium-term growth and demand are more pronounced in Armenia’s main partner countries. Specifically, the Eurozone and Russia experienced economic contraction in the first quarter, with structural problems gradually deepening, contributing to the weakening of growth capacities in these economies.
Simultaneously, with the relative stabilization of the situation in the Middle East, a certain decrease in energy prices is observed. Nevertheless, high uncertainty persists regarding the outlook for commodity and food prices. In this context, given the high uncertainty surrounding inflationary developments, the risks of leading central banks maintaining current policy interest rates for longer or increasing them remain.
Armenia’s Economic Performance and Inflationary Pressures
In the first quarter of 2026, economic growth in Armenia slowed somewhat, partly due to one-off factors, but remained relatively high. The construction and services sectors continued to contribute significantly to economic growth. The high activity in the services sector is mainly driven by sub-sectors expanding due to demand, indicating the high demand conditions formed in the economy. Moreover, signs of external demand expansion are also observed, primarily reflected in the increase in tourist flows to Armenia. In this situation, the impact of overall demand on inflation is assessed as expansionary, although supply-side factors still dominate inflation behavior.
On the other hand, the risks of a more expansionary fiscal policy stance have weakened, while private wage growth and inflationary expectations continue to show mainly stabilizing trends. Furthermore, problems arising in certain export markets could lead to a decrease in revenues in the Armenian economy, as well as the formation of excess supply for certain goods, primarily containing deflationary risks.
Financial Market Expectations and Policy Rate Decision
Under current macroeconomic developments, participants in Armenia’s financial market generally expect the CBA to maintain the current interest rate for a slightly longer period, reducing the policy interest rate to 6.25% in the medium term. Given the discussed risks and existing uncertainties, the Board considered two types of scenarios:
- Type A scenarios: Related to the possible increase in global neutral interest rates, the formation of excess demand conditions in the domestic economy, and the acceleration of inflationary expectations. These scenarios would require a higher policy interest rate path compared to market expectations.
- Type B scenarios: Related to the prospect of slowing global economic growth, the formation of deflationary risks due to problems in certain export directions, and a fundamental decrease in the risk premium of the Armenian economy. These scenarios would imply a lower policy interest rate path compared to market expectations.
As a result, balancing the need to manage risks in these two directions, the CBA Board decided to leave the policy interest rate unchanged.
The Board will continue to monitor economic development scenarios and is prepared to take adequate measures to ensure the 3% inflation target and price stability in the medium term.
Earlier today, it was also reported that the refinancing rate remained unchanged at 6.50%.
Source: banks.am
