At its meeting today, the Board of the Central Bank of Armenia decided to keep the key Policy rate (refinancing rate) unchanged at 6.75%.
In the first quarter of 2025, 12-month headline inflation accelerated, reaching 3.3% in March. Meanwhile core inflation also recorded a slight uptick during the quarter, yet remained below the inflation target, standing at 2.0% year-on-year in March.
In the second quarter of 2025, risks associated with a further slowdown in global demand and in Armenia’s key partner economies increased notably, while inflationary pressures intensified in the U.S. Uncertainty surrounding U.S. economic policies—particularly trade policy and its macroeconomic implications—remains elevated. Against this backdrop, the risks of declining prices in global commodity markets has grown.
At the same time, escalating geopolitical tensions and rising trade confrontations continue to pose risks of supply chain disruptions and renewed global inflationary pressures. Uncertainty has also increased regarding the medium-term implications of U.S. fiscal policy, including the extent of aggregate demand support, the resulting rise in public debt, and its potential impact on long-term interest rates. Given persistently tight labor market conditions in partner countries and elevated global inflation, it is likely that central banks in major economies will maintain or only gradually ease their restrictive monetary policy stance in the period ahead.
In the first quarter of 2025, economic activity in Armenia moderated, primarily due to the gradual dissipation of certain short-term, non-structural growth drivers. Nevertheless, robust performance in the construction and services sectors continued to support overall growth. At the same time, uncertainty remains elevated regarding the sustainability of this growth, its long-term trajectory, and the future path of domestic demand—largely reflecting the structural nature of the ongoing expansion. External demand for services has continued to decline, while the overall demand environment is currently assessed as neutral from an inflationary standpoint. In this context, labor market conditions are showing signs of cooling, as evidenced by the gradual stabilization of wage growth, sticky price inflation in non-tradable sectors, and inflation expectations. At the same time fiscal policy pose inflationary risks over the medium term.
Amid the elevated risks and heightened uncertainty, the Board has assessed multiple scenarios, consistent with its mandate to ensure price stability. On one hand, the Board considered scenarios (Case A) where uncertainties — including those related to geopolitical developments and fiscal policy dynamics in Armenia — could lead to an increase in the country’s risk premium and related macroeconomic consequences. These scenarios would warrant a higher path for the policy rate relative to market
expectations to ensure the price stability. On the other hand, scenarios (Case B) were evaluated that reflect risks arising from prolonged uncertainty surrounding U.S. economic policy, a deterioration in global economic confidence, and potential spillovers in the form of weaker growth and subdued demand in Armenia. Under such conditions a more pronounced and accelerated reduction in the policy rate compared to current market expectations may be warranted to support domestic demand and guide
inflation toward its medium-term target.
While the Board believes that though there is a greater likelihood of Case B-type scenarios materializing, it emphasizes the importance of minimizing the potential macroeconomic losses that could stem from the Case A-type risks. As a result, the Board decided to keep the Policy Rate unchanged. The Board resolutely affirms its commitment to adopting the appropriate policy actions and strategy to ensure the price stability objective of 3% inflation in the medium term.
