Are the government’s actions consistent with the Central Bank’s fight against inflation?

The Central Bank of Armenia reduced the refinancing rate to 7%. It should be noted that we have been facing this tendency for months. The refinancing rate is the tool used by the Central Bank to regulate inflation, bringing it to the target level. For a long time, the consumer price index (CPI) has been close to zero, slightly accelerating over the last month. Therefore, even in the beginning, we expected quick actions to lower the refinancing rate.

However, these actions are being taken in small steps, with regard to both external and internal uncertainties.

There is also another circumstance that is quite interesting: the reduction of the inflation target from 4 to 3%.

Of course, in economies with more effective monetary policies, that indicator is low. It is also objective to claim that it will reduce uncertainties.

However, there is also the other side of the issue: in our country, the inflation target is reduced during the period when it is difficult to reach the 4% target.

At the same time, the question is to what extent it will be possible to maintain 3% inflation when there are inflationary expectations for a number of services from 2025. In this context, the Central Bank President has already stated that the increase in the fare price will contribute to inflation by 0.5 pp.

By the way, we can already witness signs of inflation. In terms of consumer prices, food and important services have become more expensive.

And finally, the objective question is to what extent the actions and plans of the government will be consistent with the Central Bank’s policy, taking into account the many messages sent earlier by the same Central Bank.