Armenia's central bank left its benchmark interest rate steady after cutting it four times earlier this year, saying the recent rise in coronavirus cases worldwide and the resulting uncertainty will cause a "certain" delay in the global economic recovery despite the positive economic developments seen in the third quarter of this year.
The Central Bank of Armenia (CBA) kept its refinancing rate at 4.25 percent after cutting it by a total of 125 basis points this year after cuts in March, April, June and September.
"Taking into account the above actual and expected macroeconomic developments, including a certain increase in the risk premium, the Central Bank Council considers it expedient to leave the refinancing rate unchanged," CBA said.
In addition to an acceleration of a the spread of COVID-19 in the first half of October, CBA said the eruption of a military conflict with Azerbaijan last month over the disputed territory of Nagorno-Karabakh
"formed a negative environment in terms of both supply and demand developments."
The outbreak of hostilities on Sept. 27 has led to a more volatile exchange rate for Armenia's dram but inflation eased to 1.4 percent in September from 1.8 percent in August and the central bank said it expects inflation to gradually rise and consolidate near its 4.0 percent target at the end of the forecast horizon.
Armenia's gross domestic product shrank by an annual 13.7 percent in the second quarter of this year after growth of 3.9 percent in the first quarter and CBA said economic activity had declined by 7.5 percent in September from the same month last year.
"Despite the ongoing fiscal stimulus, domestic demand was weaker than expected in the third quarter, driven mainly by a deeper declined in private consumption," CBA said, adding uncertainty over the prospects for economic growth is expected to rise, delaying a recovery of activity and demand.
"In this situation, the Government envisages a significant expansionary fiscal policy," CBA said.
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