Armenia's 12-month core inflation reaches 5.1%

At its meeting today, the Board of the Central Bank of Armenia decided to keep the key policy rate (refinancing rate) unchanged at 6.50%.

In the second quarter of 2026, 12-month inflation continued to run above target, reaching 4.2% in May. Over the same period, 12-month core inflation rose to 5.1%.

In Q2 2026, amid geopolitical uncertainty and a prolonged period of high energy prices, demand in the global economy continued to weaken, and its outlook deteriorated. At the same time, the risks of a higher trajectory for US public debt—and therefore of long-term interest rates remaining elevated for an extended period—have increased. In Armenia's other main partner countries, the risks of weakening medium-term growth and demand are more tangible. The Eurozone and Russia, in particular, recorded an economic downturn in the first quarter, while structural problems are gradually deepening, further weighing on these economies' growth capacity. 

At the same time, with the situation in the Middle East relatively stabilizing, energy prices have eased somewhat; even so, high uncertainty persists over the outlook for commodity and food prices. In this context, given the high uncertainty over developments in the inflationary environment, the risks remain that the central banks of leading countries will keep policy rates at their current levels for an extended period or raise them.

In Q1 2026, economic growth in Armenia slowed somewhat, driven in part by certain one-off factors, but remains relatively high. 

Construction and services continued to make a sizable contribution to growth. The high activity in services was driven mainly by subsectors moving on the back of expanding demand, pointing to strong demand conditions in the economy. Moreover, there are also signs of expanding external demand, reflected primarily in the rise in tourist flows to Armenia. In this situation, the effect of overall demand on inflation is assessed as expansionary, though supply-side factors still predominate in the behavior of inflation.

On the other hand, the risks of fiscal policy taking on a more expansionary stance have eased, while private wage growth and inflation expectations continue to show mainly stabilizing tendencies. Furthermore, the difficulties that have emerged in certain export markets could lead to a decline in incomes in the Armenian economy, as well as to excess supply of certain goods—carrying largely disinflationary risks.

Given current macroeconomic developments, Armenia's financial market participants on average expect the Central Bank to hold the rate at its current level for slightly longer, lowering the policy rate to 6.25% over the medium-term horizon.

Amid high uncertainty, the Board discussed, on the one hand, Case A-type scenarios related to the possible rise in global neutral interest rates, the emergence of excess demand conditions in the domestic economy, and the risk of accelerating inflation expectations, all of which would require a higher policy rate path relative to market expectations. On the other hand, the Board also discussed Case B-type scenarios related to the prospect of slowing global economic growth, the emergence of disinflationary risks stemming from difficulties in certain export markets, and a fundamental decline in the risk premium of the Armenian economy, which would imply a lower policy rate path relative to market expectations.

As a result, balancing the need to manage risks in both directions, the Board of the Central Bank of Armenia decided 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.