Central Bank of Armenia raises policy rate to 7%
The Central Bank of Armenia (CBA) raised its policy rate by 0.25 percentage points, from 6.75% to 7%.
The decision was made at the CBA Board meeting on November 3. CBA Governor Martin Galstyan announced it at a press conference. According to the central bank, 12-month inflation stayed above the 3% target in the third quarter of 2026, reaching 4.3% in September, while 12-month core inflation was 4.7%.
Among external risks, the CBA highlighted high energy prices amid tension in the Middle East, faster growth in global food prices and the risk of further rate hikes by central banks in leading economies. In the US, rising investment in artificial intelligence and concerns over fiscal sustainability could push up long-term neutral rates, affecting rates and capital flows in emerging markets.
Economic activity in Armenia slowed somewhat in the third quarter, but growth in construction and services, along with strong imports of final consumer goods and retail sales, points to excess demand. The CBA estimates that the rising number and length of visits to Armenia create risks of faster wage growth and higher prices for services in the related sectors.
The Board considered two types of scenarios. Type A scenarios, involving higher global neutral rates, stronger domestic demand and mounting inflationary pressure, call for a higher rate path than markets expect. Type B scenarios, involving a global slowdown, weaker confidence amid uncertainty over economic relations with Russia and a lower country risk premium for Armenia, imply a lower path. Financial market participants had expected the rate to rise to 7% and then fall toward 6.75% by the end of the short-term horizon.
The Board prioritised managing the effects of Type A scenarios. Galstyan noted that “the decision of the Central Bank Board was to continue the tightening policy we adopted at the previous meeting, to make sure that through our actions we will definitely bring inflation to the 3% target.”
According to Galstyan, some Board members, weighing the risks related to economic relations with Russia against Type A risks, favoured keeping the rate unchanged. “In the view of the majority of Board colleagues, both the high neutral rate and the other factors in the form of domestic and external demand were more dominant, and as a result the decision ultimately came down to a 0.25% increase,” he stressed.
Asked whether a possible rise in gas prices could require further monetary tightening, Galstyan replied that the CBA has no gas price scenario, as there is no information on its parameters, but it has run a sensitivity analysis. Under that analysis, a 10% gas price increase, including its effect on CNG filling stations and the gas component in electricity, would add 0.6 points to inflation, and price increases in gas-using industries could add another 0.1–0.2 points. “If gas prices rise by 10%, our inflation will be roughly 0.8% higher,” Galstyan explained, adding that it is not yet known whether the effect would be linear for larger increases.
The impact of the decision on lending rates is hard to predict, in Galstyan’s view. More expensive money may raise the cost of borrowing, but in a banking system with excess liquidity, competition may hold back increases in loan rates.
The CBA Board will keep monitoring economic scenarios and stands ready to take appropriate action to achieve the 3% inflation target over the medium term.
