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Minutes of the meeting held on July 28, 2020


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On the Refinancing Rate


The CBA Board Meeting of July 28, 2020 attended by Governor Martin Galstyan, Deputy Governors Nerses Yeritsyan and Vakhtang Abrahamyan, and Board Members Hasmik Ghahramanyan, Armenak Darbinyan, Oleg Aghasyan, and Hovhannes Khachatryan


The Board meeting opened with presentation of the Situation Report as of July 28, 2020. It addressed current developments on inflation, external environment and real, fiscal, financial and monetary sectors of the economy in the context of the processes of overcoming the persisting pandemic, mitigating economic consequences and restoring economic activity.


In June 2020, it was recorded, there was 1.4% deflation against the 1.9% deflation in the same month of the previous year, and the 12-month inflation expanded, amounting to 1.7%. The June deflation totally owed to a 3.5% decrease in prices of item “Food products and non-alcoholic beverage”, which made -1.37 pp contribution to inflation. During the month, the price falls were considerable in items “Clothing” and “Footwear” (combined contribution to inflation: -0.06 pp), whereas price increases were observable on services tariffs, making a 0.07 pp contribution to inflation. At the same time, the 12-month core inflation behaved mainly stable, staying at a 0.8% level.


According to the Central Bank of Armenia assessments, in the external sector in the second quarter, persisting coronavirus pandemic led to a big decline in the world economy and a significant weakening of external demand, which was mainly in line with forecasts by both the CBA and reputable international financial institutions. Moreover, even though a slight recovery of headline inflation was observable in Armenia’s main partner countries on the back of a certain increase in energy prices, core inflation continues staying low, which points to a persistently sluggish demand. The world’s commodity markets, it was noted, saw a slightly higher-than-expected inflationary environment due to a faster recovery of the Chinese economy and reported higher level of international oil prices. Meanwhile, still significant are the uncertainties in the world economy over the further course of the pandemic, the elimination of economic consequences, and the ways and timing of economic recovery across countries. Taking into account the abovementioned developments, Armenia’s main partner countries continue implementing a considerably stimulative fiscal policy, while keeping the monetary policy stance expansionary.


After discussion of the economic developments in Armenia, it was noted that, as expected, a sharp decline in economic activity was also registered in Armenia in the second quarter under the influence of economic consequences of the pandemic. This is driven by both supply-side factors such as reduced labor supply and productivity, disruption of supply chains, and demand factors such as reduced and delayed consumption and investment and increased propensity to precautionary savings. Thus, in January-June 2020, relative to the same reference period last year, the economic activity has been close to the expected decline of 4.7%, in the structure of which, however, a positive deviation was observable in industry, as developments in the mining sector proved more positive than anticipated, whereas the decline in the activity in services sector – accommodation, public catering and other services – slightly exceeded the forecasts. The decline in economic activity came along with a notable weakening of domestic demand, which was reflected in considerable reduction in both private consumption and private investment. Despite a considerably larger-than-expected flow of remittances by individuals from abroad and somehow restored growth rates of lending in June, aggregate demand remains weak, and the slow recovery anticipated in the upcoming quarters will be largely determined by reduction in consumption, investment, more precautionary saving and sluggish external demand amid the pandemic-driven uncertainty. It was noted that there was some improvement in the balance of payments deficit, largely thanks to higher-than-expected increases in export of goods and remittances. Also, it was noted that the stimulative fiscal policy pursued by the Government of Armenia will have a positive impact on both supply and demand, and in this context, the recent legislative change on profit taxation.


The Board had a discussion over the growth of lending reported in May-June, at which some members of the Board expressed a point that, in fact, this growth would be statistically smaller if the financial system worked with a normal repayment schedule, rather than announcing credit vacation and operating under it in the entire second quarter. At the same time, admitting that the loans provided under the Government Assistance Programs constituted a large share in actual growth of lending, some concern was raised if trends of recovery of lending growth rates will continue, since the probability that the financial system would be further lending its own funds at the same intensity after these programs are over will largely depend on the pace of economic recovery and the extent of uncertainty. The latter can pose significant risks in terms of recovery of demand in the future.


As to the developments in the Armenian financial market, it was registered that the developments showed primarily stabilization trends during the second quarter, in the meanwhile almost consistently reacting to the refinancing rate cuts by the CBA. Short-term market rates fell, shaping around the policy (refinancing) rate all the time. In the government bond market, a decrease along with the yield curve was observed in April, and the interest rates showed a rather stable behavior in May-July. In the banking system, the response of interest rates on loans and deposits to the policy changes has been chiefly negligible, due to both the time lags in the transmission mechanism and the possible adjustment of risk appetite in the banking system. At the same time, following a big volatility in the first part of the quarter, the yield on Armenia Eurobonds demonstrated a tendency of remarkable decrease and stabilization in the second part. Such a positive development, the Board reckons, is an indication that the country’s sovereign risk premium has reduced and stabilized in the range of 4%.


The Board also discussed proposals on setting the refinancing rate and on improving and raising the effectiveness in external communication for its rationale. According to them, shortly after the Board’s decision on the level of interest rate at the meeting, a brief press release indicating the interest rates set for the Central Bank operations is published. A new culture of communication is being introduced whereby a press conference with participation of the Central Bank Governor is held at 3:30 pm on the day of the Board meeting, which is also broadcast live on the Central Bank’s website. In the first part of the press conference, the Governor presents the press release that gives a rationale for deciding on the refinancing rate, after which it is published no later than 4:00 pm, and the press conference continues in a question-and-answer format. The Board approved this initiative, emphasizing that high efficiency and transparency of such communication increases the financial market participants’ awareness.


Following presentation of the Situation Report and the developments in external and domestic macroeconomic environments, the Board began addressing the monetary policy directions and making decision on the interest rate. Given that actual developments in the current phase of monitoring were entirely in line with the monetary policy program’s forecasts, and the current monetary conditions were estimated to be rather stimulative, a proposal was made to keep the refinancing rate unchanged. Along with this, some members of the Board expressed a view that although there are some positive factors in terms of demand, both demand and supply are still rather weak, the recovery of demand may slow down due to weaker global economic growth, and there are fears that the amount of fiscal stimulus may be smaller than expected, so it is necessary to continue increasing the amount of monetary stimulus. One of the members of the Board pointed out the uncertainty of estimates on the relative change of the supply and demand. At the same time, there were views that the current economic situation is problematic, especially when it comes to the supply recovery prospects, in which case the role of a stimulative fiscal policy and, in this context, especially through the potential-growth enhancing government expenditures is far more crucial. As a result, it was decided by a majority of votes to keep the refinancing rate unchanged in order to maintain the monetary policy stance expansionary in the near future. In this circumstance, according to the baseline scenario, inflation will remain relatively low in the coming months but will gradually approach the target later.


The Board approved the decision on interest rates of the CBA monetary instruments and the proposed press release, which are attached hereto.


Deciding on the Interest Rate


050.0119 L. 28.07.20

July 28, 2020

No. 119 L


Interest Rates of Monetary Policy Instruments of the Central Bank of the Republic of Armenia


By virtue of Article 2 (3), Article 20 ‘c’ and ‘e’ of the Republic of Armenia Law on the Central Bank and the provisions of the Republic of Armenia Law on Regulatory Acts, the Board of the Central Bank of Armenia


1.             Set the Refinancing Rate of the Central Bank of Armenia at 4.5%.

2.             Set the Lombard Facility Rate offered by the Central Bank of Armenia at 6.0%.

3.            Set the Deposit Facility Rate offered by the Central Bank of Armenia at 3.0%.

4.             This decision takes effect on the day following its publication on the website of the Central Bank of Armenia.


Martin Galstyan,

Governor of the Central Bank

July 28, 2020

c. Yerevan




At the July 28, 2020 meeting, the CBA Board decided to keep the refinancing rate unchanged at 4.5%.


In June 2020 inflation stood at -1.4%, compared to -1.9% in the same month of the previous year. As a result, the 12-month inflation increased to 1.7%. At the same time, the 12-month core inflation remained at 0.8%, which is the level seen in the previous month.


In the external sector, the global economy and the external demand significantly contracted during the second quarter, which was in line with the latest monetary policy program. At the end of the quarter, prices in major commodity markets were slightly higher than anticipated. At the same time, both advanced and developing countries have continued to pursue expansionary monetary policy and highly expansionary fiscal policy. As expected, there will be no significant inflationary impact on the Armenian economy from the external sector.


In the second quarter, the contraction of both economic activity and domestic demand caused by the pandemic was in line with the Central Bank’s projections. The decrease in output was mainly in the construction and services sectors, while the decline in the industry was less than expected. Due to the high uncertainty related to the timing of the resolution of the pandemic, domestic demand is expected to remain weak in the near term, despite some positive contribution from the higher-than-anticipated inflow of remittances. At the same time, it is estimated that the current fiscal policy, in particular, the recent legislative changes in profit taxation, will have a positive impact on both supply and demand.


Taking into account that the actual developments were in line with the forecasts of the latest monetary policy program, the CBA Board deems the current monetary conditions sufficiently expansionary. At the same time, the Board estimates that in the current situation it will be necessary to maintain the expansionary position through the medium term, which will allow inflation to gradually increase and stabilize at the target level by the end of the forecast horizon. The Board agrees that expansionary fiscal policy, especially through the potential-growth enhancing government expenditures, in the current situation is also essential for the recovery of aggregate demand.


The Board of the CBA assesses that due to the possible slowdown in the recovery of demand and probable extension of uncertainty, the risks to inflation are skewed downwards. In case such risks are realized, the Central Bank is ready to respond accordingly to ensure price stability in the medium term.


Detailed information underlying the setting of the level of interest rate is available in Press Release (Minutes on Interest Rate) to be published by August 11, 2020.


Press Service of the Central Bank of Armenia





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Regulator Information

Regulator Name: Central Bank of Armenia
Abbreviation: CBA
Jurisdiction: Armenia

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