Annual CPI inflation accelerated in Q2 2025, standing at 3.9% in June. Meanwhile, core inflation edged up slightly, standing at 3.1% Y-o-Y in June, the Armenian Central Bank said in its Executive Monetary Policy Statement published on August 5.

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 Q2 2025, risks of a further slowdown in demand conditions globally and in Armenia’s key partner economies intensified, while inflationary pressures in the US intensified, the cenbank said.

Uncertainty surrounding US trade policy and its macroeconomic implications remains elevated. Uncertainty has also increased regarding the medium-term implications of US fiscal policy, including the extent of aggregate demand support, the resulting rise in public debt, and its potential impact on long-term interest rates. At the same time, persistent geopolitical uncertainty and heightened tensions in international trade relations continue to pose risks of supply chain disruptions and renewed global inflationary pressures. Further, global food prices have ticked up since the beginning of the year, primarily driven by supply factors. A persistence of these trends could be a primary source of further increases in domestic inflationary pressures. In this context, considering weakening demand conditions on the one hand and persistent inflationary risks on the other, central banks in major economies would be expected to either maintain or gradually ease their tight monetary stance. In the second quarter of 2025, economic activity in Armenia accelerated, with growth in demand-driven sectors offsetting the gradual dissipation of certain short-term, non-structural growth drivers. Sustained, robust growth in the construction and services sectors has remained the key driver of overall economic activity. Following sustained declines in 2024 and Q1 2025, external demand for services has increased in Q2. At the same time, uncertainty remains elevated regarding the sustainability of this growth, its long-term trajectory, and the future outlook for domestic demand. In this context, demand continues to have a neutral impact on inflation, while recent increases in headline and core inflation have been driven by supply-side factors. Labor market conditions continue to cool, as reflected in the gradual stabilization of wage growth, non-traded sticky price inflation, and inflation expectations. At the same time, risks for medium-term demand pressures from fiscal policy persist. In the context of current macroeconomic developments, financial markets in Armenia generally expect the Central Bank of Armenia to gradually lower the refinancing rate over the next twelve months to approximately 6.25%. In order to manage possible risks stemming from conditions of high uncertainty, the Board considers multiple scenarios during its deliberations. On the one hand, the Board discussed scenarios where possible underlying developments would require a higher path for the policy rate relative to current market expectations. This includes scenarios related to risks of a rising neutral rate globally and in Armenia in the context of geopolitical tensions and fiscal policies, as well as risks of expanding demand conditions. On the other hand, the Board also discussed scenarios where potential economic developments—including uneven weakening of certain sectors of the economy amid adjusting external demand; concerns regarding a weak demand environment forming and deepening in the economy due to a potential gradual adjustment of real estate prices; and overall concerns about the outlook for the global economy—would cause inflation to persistently remain at a low level. This would imply a more rapid and aggressive downward path for the policy rate than what is currently priced in markets in order to sustainably bring inflation back to target in the medium-term horizon. Emphasizing the buildup of Case A-type risks and seeking to minimize the losses that could stem from these and other scenarios materializing, the Board finds it appropriate 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.

Published by Armenpress, original at https://armenpress.am/en/article/1226454