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Armenia's Interest Rate Increase 'Not Expected To Hurt Growth'

Gagik Minasian

Gagik Minasian

YEREVAN -- The head of the Armenian parliament's finance committee says the latest increase in the country's official interest rate will not affect Armenia's growth rate, RFE/RL's Armenian Service reports.

The Central Bank of Armenia increased its benchmark interest rate for a third time in as many months at a regular meeting on April 12. Citing increased inflation, the central bank's governing board raised the refinancing rate by 25 basis points to 8.5 percent.

Gagik Minasian, chairman of the parliamentary committee on finance and budgetary affairs, told RFE/RL on April 13 that "the latest increase in the central bank's refinancing rate is a reaction to the inflationary pressures."

The cost of borrowing stood at 7.25 percent as recently as early January. Consumer prices in Armenia have continued to rise significantly since then, resulting in an annual inflation rate of 11.5 percent last month.

The figure reported by the National Statistical Service (NSS) was well above the maximum target of 5.5 percent that was set by the government and the central bank for this year.

According to the NSS, inflation was mainly caused by the increased cost of food.

In a statement, the bank noted that the first-quarter rise in international food prices "exceeded expectations." It said this means that inflationary pressures on the economy will remain strong in the coming months.

But the bank said those pressures will ease in the second half of 2011 thanks to anticipated growth in Armenia's agricultural output.

Minasian was confident the measure will not stifle economic growth in the country, which is projected to accelerate to 4.6 percent in 2011.

"I don't see problems with economic growth," he said.

The central bank's refinancing rates have always had a limited impact on inflation and economic activity in Armenia because of the small size of the local debt market.