According to the scenarios presented in the monetary policy program, in the short-term horizon of 2024, inflation will remain below the target level and will be 1.3-1.5 percent at the end of the year. On May 13, at the session of the NA Standing Committee on Finance, Credit and Budgetary Affairs, the annual report on the activities of the Central Bank of RA for 2024 will be presented. announced the President of the Central Bank of Armenia, Martin Galstyan.
He emphasized that from 2024, the Central Bank introduced a new monetary policy development, implementation and communication system based on the principle of prudent risk management.
"Increasing uncertainties and risks are new realities and challenges for central banks that require a rethinking of the current approach to monetary policy development and communication. This system is a structured and systematic approach to monetary policy based on risk management, which enables us to effectively analyze and communicate policy-relevant risks and uncertainties. In the process of making decisions on monetary policy under this system, we are guided by the construction and observation of several scenarios for the development of the Armenian economy. Those scenarios, two or more, imply a higher or lower trajectory of the policy interest rate compared to the current expectations of the market, forming a logic necessary for decision-making from the point of view of monetary risk management," said Martin Galstyan.
According to him, in the first quarter of 2024, the risks of economic growth slowing down in the world and Armenia's main partner countries remained. Global inflation continues to slow, but prices for hard-priced goods and services in partner countries still remain relatively high. At the same time, overheated labor market conditions in partner countries continue to support high demand. The geopolitical tension created in the Middle East since the beginning of the year continues to cause certain risks in terms of further increase in global energy prices and possible disruption of supply value chains.
"In this context, it is likely that the central banks of the partner countries, in particular, the US Fed, will maintain strict monetary conditions for a longer period of time. As a result, weak deflationary effects on the RA economy are expected from the external sector," said the speaker.
It was noted that in the first quarter of 2024, high economic activity was maintained in Armenia, which was greatly contributed by the significant growth of trade and industry branches. The latter continues to be influenced by certain short-term factors, containing significant uncertainties in terms of the sustainability of economic growth and long-term prospects.
External demand for domestic services is weakening somewhat, while domestic demand continues to be supported by high growth in private investment. At the same time, risks of additional demand stimulus from fiscal policy remain material.
"In that situation, various organizations and financial market participants estimate the economic growth of RA in the range of 5-6.5 percent for 2024. Naturally, the current situation is full of risks and great uncertainties.
During the last four months of 2024, the low inflation environment was maintained in Armenia. In April 2024, 12-month inflation eased to -0.7 percent, well below our medium-term target. This was mainly due to deflationary effects transmitted from the external sector, expressing a significant deflation of food products. 12-month normal inflation is also in the negative range. in March it was -0.7 percent.
I should note that the domestic demand conditions in the economy are best reflected by the hard non-export price index, which, despite the sharp decrease in overall inflation in 2023, has remained at a relatively high level. However, in recent months, that indicator has also started to slow down and was 2.4 percent in March 2024 compared to the same period last year. In parallel, the inflation of services related to external demand also decreased, expressing the tendencies of slowing down the growth of external demand. Meanwhile, the inflation of services related to outbound tourism, including air transport and international recreation services, continues to be maintained at a high level," the Central Bank President noted.
According to him, according to the scenarios presented in the monetary policy program, in the short-term horizon of 2024, inflation will remain below the target level and will be 1.3-1.5 percent at the end of the year.
"We are discussing and considering different scenarios under the new system of monetary policy development and implementation and in the conditions of great uncertainties related to current and future macroeconomic developments.
Balancing the risks in both directions mentioned above during our recent 2024 decisions, the CB Board has continued to gradually ease monetary conditions at this stage. We continue to monitor the economic development scenarios and are ready to take adequate actions to ensure the goal of 4 percent inflation and price stability in the medium-term horizon," concluded Martin Galstyan.
