12-month core inflation in Armenia reaches 4.7%

The Central Bank of Armenia (CBA) on Tuesday left its benchmark policy rate unchanged at 6.50%, as inflationary pressures accelerated and global economic uncertainty deepened.

Deputy Governor Hovhannes Khachatryan announced the decision following the May 5 meeting of the CBA Board, noting that headline inflation reached 4.5% in March while core inflation climbed to 4.7% year-over-year.

The Board cited heightened risks stemming from geopolitical instability, surging energy prices and weakening demand in key partner economies. While U.S. growth showed modest acceleration in the first quarter, consumer demand remained subdued. In the eurozone, structural vulnerabilities and energy dependence continued to weigh on output, while Russia’s leading indicators pointed to slowing activity and weakening domestic demand. Persistent tensions in the Middle East further exacerbated risks of commodity price volatility.

Domestically, Armenia’s economy maintained robust momentum, driven largely by construction and services. Khachatryan highlighted structural shifts within the services sector toward demand-driven sub-industries, reflecting resilient internal consumption. Tourism inflows, particularly from the Middle East, also provided a boost.

Despite strong activity, the Board assessed demand’s impact on inflation as expansionary, while supply-side risks remained significant. Fiscal policy risks have somewhat eased, and wage growth alongside inflation expectations showed signs of stabilization.

Financial market participants anticipate a medium-term rate cut to 6.25%. Yet the Board weighed two contrasting scenarios:

Scenario A: Higher global neutral rates, excess domestic demand, and fiscal expansion risks requiring tighter policy.

Scenario B: Slower global growth and reduced Armenia-specific risk premiums allowing for looser policy.

Balancing these risks, the Central Bank opted to hold the rate steady, pledging vigilance in monitoring developments and readiness to act to secure its medium-term inflation target of 3% and safeguard price stability.