In February 2025, the Central Bank of Armenia released its assessments of economic developments and inflation, presenting data from the fourth quarter of 2024. The 12-month inflation rate, as predicted, remained below the target level, at 1.5 percent, and in December it even decreased to 1 percent. Based on this data, the Central Bank decided to reduce the refinancing rate by 0.25 percentage points, bringing it down to 6.75 percent. This move is driven by the goal of achieving the 3 percent inflation target and ensuring price stability in the medium term. The Bank believes that a lower interest rate will contribute to stimulating economic activity and support the achievement of the inflation target.
The Central Bank announced its intention to continue the policy of gradually reducing interest rates, emphasizing that it will monitor economic developments and take appropriate measures if necessary. This statement reflects the Central Bank’s cautious approach, given global economic uncertainties. In the first quarter of 2025, risks of declining economic growth persist in the world and in Armenia’s main partner countries. Inflation, conversely, has increased in partner countries, and the rise in prices for goods and services characterized by “sticky prices” continues to remain significantly above the target level. Risks remain in international commodity markets regarding price increases and possible supply chain disruptions, mainly due to rising international trade tensions. At the same time, labor market conditions remain tight in partner countries, especially in the US.
Under these circumstances, major central banks are likely to continue to gradually lower interest rates, but at a slower pace than previously expected, while maintaining relatively tight monetary conditions. As a result, a weak inflationary impact is expected on the Armenian economy.
In the fourth quarter of 2024, economic activity continued to approach long-term growth estimates. The growth in economic activity was largely driven by strong growth in services, construction, and trade. This growth has continued to be affected by some short-term factors, which contain significant uncertainty regarding the sustainability of economic growth, long-term prospects, and future trends in the domestic market. Labor market conditions 1 have continued to weaken, accompanied by rising wages, service price inflation, and some weakening of inflation expectations. All of this suggests that the Armenian economy is at an important stage of development, where balancing stability and growth remains a challenge. The monetary policy pursued by the Central Bank is aimed at addressing these challenges and ensuring economic stability.