Armenia’s year-on-year inflation rose significantly in the second quarter of 2025, reaching 3.9% in June. The core annual inflation also climbed to 3.1%, the Central Bank reported.
Following its meeting on August 5, 2025, the Central Bank Board decided to keep the refinancing rate unchanged at 6.75%.
According to the statement, demand has continued to weaken globally and in Armenia’s main partner countries during the second quarter, while inflationary risks in the U.S. have increased. At the same time, uncertainty surrounding U.S. trade policy remains high, complicating macroeconomic forecasts, according to Armenpress.
In the medium term, uncertainties persist over the extent of demand stimulation from U.S. fiscal policy, potential increases in national debt, and higher long-term interest rates.
Rising geopolitical tensions and intensified strains in global trade relations also pose risks of supply chain disruptions and inflationary pressures in the global economy.
Since the beginning of the year, global food prices have been rising due to supply-side factors, and this trend continues—representing another potential source of inflationary pressure.
Against this backdrop—weak demand on one hand and a high-inflation environment on the other—the probability is increasing that central banks in leading economies will either maintain current monetary policy levels or gradually loosen them.
“In the second quarter of 2025, economic activity in Armenia continued to grow, with sectors driven by demand outperforming as the influence of temporary and non-structural factors diminished. A stable upturn in the construction and services sectors played a key role in the overall economic recovery. Furthermore, following a steady decline in external demand since 2024, the past quarter saw a recovery, particularly in the services sector.
Nevertheless, there is still significant uncertainty regarding the internal structure and long-term outlook of economic growth. Currently, the Central Bank estimates that the impact of demand on inflation is largely neutral, with current inflation trends driven mainly by supply-side factors.
Labor market conditions have also been gradually stabilizing, with wage levels aligning, service prices growing moderately, and inflation expectations weakening. However, fiscal policy still poses inflationary risks over the medium term,” the Central Bank said.
Given current macroeconomic conditions, most financial market participants expect the Central Bank to begin gradually lowering the key rate, possibly down to around 6.25%.
In light of elevated risks and uncertainties, the Board reaffirmed its commitment to the 3% inflation target and price stability, and considered various development scenarios.
Specifically, “Scenario A” was discussed, which would require higher interest rates in response to escalating geopolitical tensions, potential tightening of fiscal policy, and the formation of excess domestic demand.
“Scenario B” was also considered, focusing on weakening demand, slower growth in specific sectors, a gradual adjustment in real estate prices, and slower global economic expansion.
In its final assessment, the Board concluded that Scenario A risks were more prominent and emphasized the importance of effectively managing their macroeconomic impact. Consequently, it decided to keep the refinancing rate unchanged at this stage.
The Board reiterated its readiness to closely monitor economic developments and act as needed to ensure inflation remains at the 3% target and to maintain price stability in the medium term.
