Russian arrivals push the rate up, the ban on exports to Russia pushes it down. The CBA Board chose the first

The Central Bank of Armenia has raised its policy rate by 0.25 percentage points, to 6.75%. Behind the decision are two risks pulling in opposite directions: an inflow of Russian citizens, which calls for a higher rate, and Russia’s ban on Armenian exports, which calls for a lower one. The CBA Board chose the first.

The decision was taken at the meeting of 15 September 2026. The Lombard repo facility rate was set at 8.25% and the deposit facility rate at 5.25%.

In August, 12-month inflation reached 4.4%, continuing to run above target, while 12-month core inflation stood at 4.8%. According to the Central Bank’s documents, the policy rate decision was justified by the following developments and scenarios.

The external environment

Amid prolonged persistence and some broadening of regional conflicts, the risks of a further weakening in global demand conditions and, at the same time, intensifying inflationary pressures are gradually becoming more tangible.

In the US, strong investment activity and growing concerns over fiscal sustainability have contributed to upside risks to long-term neutral interest rates, with corresponding implications for neutral rates and capital flows in emerging market economies. In the Eurozone and Russia, despite a modest recovery in economic growth in the second quarter, structural challenges continue to deepen, weighing on the medium-term growth outlook.

Amid rising tensions in the Middle East, energy prices have remained elevated, while the gradual drawdown of accumulated inventories is increasing market vulnerability to potential new supply shocks. In this context, the risks that central banks in major economies may raise policy rates further or keep them at elevated levels for an extended period have become more tangible.

Growth in Armenia accelerated

In the second quarter of 2026, economic growth in Armenia accelerated, running above its long-term sustainable level. Growth continued to be driven largely by the construction and services sectors, pointing to the presence of excess demand conditions.

Case A: the inflow pushes the rate up

In March–July 2026, the net inflow of Russian citizens, measured as the difference between entries into and exits from Armenia, amounted to around 87 thousand, exceeding the corresponding figure for 2025 by approximately 20 thousand.

The reason is the expansion of the Russia–Ukraine conflict during 2026 and a somewhat weaker prospect of a comprehensive resolution. Recent months have seen a significant increase in attacks on civilian infrastructure, especially energy and logistics infrastructure as well as storage facilities, contributing to shortages across various commodity markets. Against this backdrop, expectations of a further escalation and expansion of the conflict have gradually emerged, leading to some changes in the behaviour of Russian citizens. These developments have coincided with an expansion of the conflict in the Middle East and heightened security risks, significantly reducing the possibility of visits to countries in the region.

In Armenia the effects are already visible: activity is elevated in certain service sectors, accompanied by a marked acceleration in price growth for hotel, restaurant and transportation services. Growing interest in Armenian real estate may indicate a planned longer duration of visits.

The experience of 2022 provides an important benchmark for assessing the potential effects, with one qualification: current developments may primarily manifest as an external demand shock, with a macroeconomic impact substantially smaller than in 2022. Possible differences in the composition of the flows and in per capita spending behaviour, together with the larger size of the Armenian economy, may constrain their relative effects.

External demand also poses material upside risks to wage growth and services inflation in the relevant sectors. Under this scenario, although the nominal exchange rate acts as the primary shock absorber, a higher-than-expected policy rate path would be required to contain aggregate demand and mitigate the risks of an acceleration in inflation expectations.

Case B: the ban pushes the rate down

The restrictions imposed by Russia since June 2026 on exports of plant- and animal-origin products from Armenia could, if prolonged, have a substantial negative impact on agriculture and, given the sector’s significant employment base, could also weaken investment and consumer confidence in the economy.

The restrictions apply to products whose combined exports amounted to around 1.2% of GDP in 2025. While the overall value at risk is relatively limited, a large share of the production of certain products, including flowers, fish products and stone fruits, is exported to Russia, complicating the absorption of these products in the domestic market. Opportunities to redirect exports toward alternative markets remain limited in the short term.

The Bank draws attention to two aggravating circumstances. First, the sector’s large employment base is likely not fully captured in official statistics due to the high level of informal employment, alongside relatively lower wages and incomes. Second, debt burdens in the sector have increased significantly in recent years, reaching around 52% of output as of the third quarter of 2026, against 17.1% in 2021. This increases the sector’s vulnerability to a decline in income and creates additional risks to consumer and investment confidence.

Should this scenario materialise, monetary policy should be geared toward supporting demand and absorbing deflationary pressures, requiring a policy rate path lower than currently expected by financial markets.

The CBA Board chose the first case

Surveyed financial market participants generally expected the Central Bank to maintain the policy rate at its current level over the next year, followed by a reduction to 6.25% over the medium-term horizon.

The Board decided otherwise: emphasising the need to manage implications stemming from Case A-type scenarios, it raised the policy rate by 0.25 percentage points. 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.

Source: Central Bank of Armenia, Monetary Policy Report, 2026 Q3.