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 Thursday, November 27 2014

Karina Melikyan

Prime Minister of Armenia: Sudden devaluation of the Armenian dram will have an adverse effect on people's well-being, but positive effect on exporters

Prime Minister of Armenia: Sudden devaluation of the Armenian dram will have an adverse effect on people

 The latest sudden devaluation of the Armenian dram will have an adverse effect on people's well-being, but will have a positive effect on exporters, Prime Minister of Armenia Hovik Abrahamyan told reporters, on 27 November. He explained that the given situation will enable exporters maintain the production volumes and sales process, and create new jobs. 


Earlier, on Tuesday, Armenak Darbinyan, a member of the Armenian Central Bank Council, said in a statement that the national currency rate correction bears no serious inflation risks. Neither it threatens to the financial stability. He explained the national currency rate correction with external factors such as slackening of the economic growth and devaluation of the national currencies of the partner-states as well as commodity market trends in a range of countries.  A. Darbinyan said the given step of the Central Bank enabled settling two problems: maintain the competitive ability of exports and ensure the transfers to Armenia that usually intensify in the pre-New Year period. 
The average growth of the USD exchange rate in Armenia from 419.5 to 435 AMD/1USD over the past weekend is most likely of adjusting nature. Independent market analysts have expressed such an opinion on the condition of anonymity. In early November the Central Bank of Armenia (CBA) started interfering in the situation more and more actively and tried to smooth out the possible exchange rate fluctuations in the market by increasing the currency interventions. The market is already experiencing a stable upward move connected with certain growth expectations.  Thus, October's comparative calmness in the currency market of the country was followed by an active phase on the very first days of November due to the devaluation expectations connected with the situation in Russia, one of the most important trade partners of Armenia. 


The sharp RUR devaluation amid the "sanction war" has resulted in considerable slowdown in the growth rates of private transfers to Armenia and in certain difficulties for Armenian exporters, particularly, in reduction of foreign exchange revenues especially in the processing industry and the mining industry, which has become a hostage of the tangible decline of world prices in the markets of raw materials and metals. According to the official statistics, the export of commodities and services from the country has decelerated the rates in both monthly and annual dynamics: in October 2014 export dropped by 1.1% (versus 21.3% growth in October 2012), and in the two-year dynamics the export growth rates dropped almost twofold - from 18% to 10.9%. These are the fundamental reasons that dictated the need for balancing the exchange rate parity by means of AMD devaluation. As a result, experts think that the CBA's actual policy of "the managed float" has provided an opportunity to open the oxygen valve for the export- oriented enterprises, including those exporting products not only to Russia.  


Independent experts believe that the USD exchange rate is likely to remain more or less stable in December and possibly January, i.e. during the Christmas consumer excitement. Within the mid-term outlook - February-March 2015 - experts forecast possible rise in the exchange rate. Its growth rates will depend on the global trends directly affecting the macroeconomic indices and adjusting the monetary policy of the Central Bank.

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