According To CBA Forecast, Inflation To Make 7.4% In Armenia In 2008

ACCORDING TO CBA FORECAST, INFLATION TO MAKE 7.4% IN ARMENIA IN 2008

Noyan Tapan
April 14, 2008

YEREVAN, APRIL 14, NOYAN TAPAN. The Central Bank of Armenia (CBA) has
presented forecasts about inflation for the next 12 months. According
to the CBA press service, by the forecasts of the inflation model by
commodity types, under conditions of the unchanged level of market
interest rates, 12-month inflation will make 6.9% at the end of the
1st quarter of 2009 and 7.4% at the end of 4th quarter of 2008. The
current forecasts have been specified as compared with the previous
ones in the direction of a growth, taking into account the inflation
developments in the 1st quarter of 2008.

In particular, starting from 2nd quarter of 2008, international
prices of raw material and food commodities will decline somewhat,
while real GDP growth rates will maintain in Armenia, under conditions
of the gross demand a little exceeding its balanced level.

The CBA considers it possible that actual inflation in the country
may exceed the forecast index due to a higher than forecast growth of
international prices of oil and food commodities (including grain),
with the growth of oil prices depending on both geopolitical and
foreign economic developments. A higher than expected growth in
crediting of the economy, which may result in additional encouragement
of the overall demand, may contribute to higher than forecast inflation
in Armenia.

It is indicated that depending on the volume of agricultural
production, food prices may affect the overall inflation in the
direction of either a growth or a decline.

Taking into account the developments in the 1st quarter of 2008 and
the forecasts for the next 12 months, the CBA Board registered that
the inflation pressures continued to increase at the end of the 1st
quarter, notably affecting the domestic prices of foodstuffs. The
high inflation pressures from the external environment are expected
to continue in the 2nd quarter of 2008 and will start declining at
best in the second half of 2008 – only in case of a favorable course
of events. The degree of uncertainty of further developments in the
external environment has also grown. Deflation risks are possible
but in all likelihood the risks of increasing inflation pressures
will prevail. At the same time, the secondary impact of the above
mentioned developments – combined with the impact of the surplus
demand from the previous period – starts to become obvious, leading
to a growth of non-food commodity prices and service tariffs.

Gradual tightening of the monetary and credit conditions in this
sitaution aims to mitigate the inflation expectations conditioned
by the indicated developments, as well as the secondary impact. At
the same time, the CBA Board pointed out that the tendency of the
monetary base to grow should always be in the center of attention.

In conditions of different opinions on measures to reduce the inflation
pressures from the extenal environment, on the amount of secondary
inflation impact and on the intensity of inflationary intertia, the
Board discussed the options of raising the interest rates of repo
transactions by 0.25% or 0.5%.

As a result, at the sitting held on April 2, 2008, the CBA Board
made a decision to raise refinancing interest rate by 0.25% and fix
it at 6.50%.

The interest rates of lombard credit and deposit were fixed at 9.5%
and 3.5% respectively.

From: Emil Lazarian | Ararat NewsPress

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Emil Lazarian

“I should like to see any power of the world destroy this race, this small tribe of unimportant people, whose wars have all been fought and lost, whose structures have crumbled, literature is unread, music is unheard, and prayers are no more answered. Go ahead, destroy Armenia . See if you can do it. Send them into the desert without bread or water. Burn their homes and churches. Then see if they will not laugh, sing and pray again. For when two of them meet anywhere in the world, see if they will not create a New Armenia.” - WS