Central Bank of Armenia cuts policy rates by 25bpts to 9.25 percent

CAUCASUS / CENTRAL ASIA - In Brief 12 Dec 2023 by Ivan Tchakarov
The Central Bank of Armenia cut the policy rate by 25bpts to 9.25 percent. This was in line with our forecast outlined in the 2024 Caucasus/Central Asia Outlook. The Central Bank of Armenia transitioned to easing in mid-2023 as the sizable downshift in headline inflation provided the right stimulus for policymakers to switch gears. It has now cut the policy rate by 150bpts over the course of the year. We forecast inflation to remain below the 4.0 percent CPI target in 2024. Inflation dropped from 10.3 percent YoY in Jun 2022 to 1.3 percent YoY in May 2023, moved to deflation in Jun and is currently (Nov) is running at -0.5 percent YoY. Price growth lost momentum as food inflation moderated, currency appreciated, and high base effects kicked in. In its latest inflation report (Sep), the central bank introduced significant changes in its baseline trajectory for inflation, which it now sees not converging to the CPI target even by the end of next year. We agree with this assessment as we forecast average 2024 inflation to inch up to 3.0 percent from an estimated 2.2 percent this year. At the same time, risks are slanted to the upside given the combination of still strong growth, higher import prices from Russia and low base. We anticipate the Central Bank to continue easing to 8.0 percent by the end of 2024. Despite the implemented cuts, monetary policy remains tight with the real policy rate still hovering around 10 percent (Graph 1). The ongoing bias to err on the side of caution will likely be maintained through next year, implying a steady pace to continue cutting rates in a measured way. We forecast end-2024 policy rate at 8.0 percent. Graph 1 Despite cuts, monetary ...

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