YEREVAN, March 28. /ARKA/. The Central Bank of Armenia has no intention to continue easing its monetary policy for speeding up inflation – it says too low interest rates can create potential economic and financial risks.
Arthur Javadyan, chairman of the central bank, said in an interview with Reuters that in order to spur inflation and consumer demand, the central bank started cutting its key interest rate in August 2015.
It trimmed the key rate again on Feb. 15, bringing it to 6 percent compared with 10.50 percent at the start of the easing cycle.
The regulator says its key rate had been driven down from 10.5% in June 2015 to 6% in February 2017.
"Rates lower than (the current) level may have undesirable effect on development of economy's real and financial sectors, and that's why the central bank will have more cautious approach when considering easing options," Javadyan said in his interview.
The central bank is due to take next decision on the rate on March 28.
"If the central bank estimates that risks of deviation from inflation target rise, it will react accordingly, using all instruments to provide price stability," the head of the Armenian regulator told Reuters.
Javadyan said that prices would remain low over the short term, and the inflation speedup to the targeted 4 percent by early 2019 should be gradual.
"We think that gradual achievement of the target will ensure general equilibrium of economy with minimum negative consequences," he said.
The regulator, he said, expects annual inflation at 0.6 percent in 2017 and 2.2 percent in 2018, but projections are revised every quarter.
Javadyan told Reuters that the central bank might revise the country's economic growth outlook upwards, but it remains at 2.2-3.2 percent range for this year.
"Growth is mainly conditioned by recovery of internal demand, effective implementation of government programs, aimed at stimulating export and investment as well as structural reforms," he said.
In its 2017 budget, Armenian government projected inflation at 4% (±1.5%) and DGP growth at 3.2%. --0---