Central Bank's decision to cut refinancing rate is positive factor - Freedom Broker Armenia

YEREVAN, August 2. /ARKA/. The decision of Armenia's Central Bank to cut the refinancing rate by 0.25 percentage points, setting it at 10.25% is a positive factor, Hovak Hovakimyan, CEO of Freedom Broker Armenia, told ARKA news agency.

"The Central Bank's cautious policy is quite justified. Despite a 0.5% yoy drop in inflation in June, the high share of imports of food and essential goods may lead to a new round of inflation growth, because a larger cut of the refinancing rate may sharply lower the exchange rate of the dram," he explained.

The Central Bank of Armenia cut the refinancing rate by 0.25 p.p. at its August 1 meeting, setting it at 10.25%. This is the second cut of the refinancing rate since the beginning of the year. The first one was on June 13, when the regulator cut it by 0.25 p.p. setting it at 10.5%.

Hovakimyan also noted that Freedom Broker Armenia agrees with Fitch rating agency, which recently raised Armenia's long-term foreign currency issuer default rating from "B+" to "BB-" with a stable outlook saying also that the dram may moderately depreciate in 2023-24, albeit still to levels stronger than before the start of the Ukraine conflict.

"We broadly agree with Fitch and believe this is good for Armenia's economy. The slowdown in remittances sent by Russian nationals who relocated to Armenia and lower interest rate will lead to less demand for Armenia's national currency and a depreciation of the exchange rate," he said.

Fitch Ratings on July 28 raised Armenia's long-term foreign currency Issuer Default Rating ("IDR") from "B+" to "BB-" with a stable outlook saying sustainable economic growth and stabilization of government debt contributed to the improvement of Armenia's position. Fiscal stability and improved balance of foreign trade were also positive factors. -0-