Central Bank Governor: Israel-Iran conflict may increase risks for Armenian economy
Yerevan, June 18: /ARKA/. Central Bank Governor Martin Galstyan responded to a question from the ARKA news agency regarding the possibility of revising Armenia's economic growth forecast in light of the escalation between Israel and Iran.
"We discussed two scenarios, A and B, and in both, we tried to take the conflict into account. We applied a certain logic, of course not with the in-depth approach we will have after some time because everything is still very fresh," Galstyan said.
According to Galstyan, if the war enters a more active phase or the conflict lasts longer, the entire region will become riskier.
"We will have a problem with the disruption of goods value chains. Second, it may impact external demand in terms of tourist flows. Third, it may impact the 'risk premium' of our region in general," Galstyan said.
He noted a large number of Type A risks. "Type A risks have increased. However, there are also type B risks. We may face a situation in which the economy as a whole weakens. In other words, our trade relations or other issues may contribute to a weakening of domestic demand in our economy," he said.
At a meeting on Tuesday, the Central Bank Board considered a number of scenarios for its policy, given the risks and high uncertainty.
"On the one hand, we discussed type A scenarios, including those related to the geopolitical situation and a possible increase in the neutral interest rate. These scenarios require a higher interest rate trajectory than market expectations to neutralize inflation risks and ensure price stability targets," Galstyan said.
He added that Type B scenarios are associated with risks of a disproportionate slowdown in the growth of individual sectors of the economy and an additional weakening of demand in the context of the ongoing external adjustment.
This implies a faster and more noticeable reduction in the interest rate than the market expected, in order to regulate demand and stabilize inflation around the target in the medium term.
"As a result, considering the growth of Type A risks and the need to manage the resulting macroeconomic consequences, the Central Bank Board decided to keep the refinancing rate at 6.75% for the time being. The Board will continue to monitor economic development scenarios and is prepared to take appropriate measures to achieve the 3% inflation target and ensure price stability in the medium term," said Galstyan.
He called making forecasts about investor behavior a thankless task in the current situation.
Armenia's economic growth in the state budget for 2025 is estimated at 5.1%. According to the Central Bank's monetary policy report for the first quarter of this year, Armenia's GDP growth is expected to be 7.0%-4.8% by the end of 2025, 4.7%-4.1% in 2026, and 4.7%-6.1% in 2027.-0-
