Central Bank Governor: This is to End Discussions About the Appreciation of the Armenian Dram

Due to the appreciation of the dram in Armenia, inflation has been lower. This was stated by Martin Galstyan, the Governor of the Central Bank, during an extraordinary meeting of the National Assembly’s Financial and Budgetary Affairs Committee, where he discussed the impact of the Russian-Ukrainian situation on the Armenian economy.

“The demand for foreign currency deposits from non-residents, meaning those deposits that non-Armenian citizens hold in commercial banks in Armenia, has sharply increased in March, April, and June,” Galstyan noted.

The same applies to rental prices and transfers made to individuals via the banking system. “The monetary impact up to May was approximately 500 million dollars, and we see significant growth in June as well,” said the Central Bank Governor.

Addressing this influx, he explained that if demand for foreign currency remains but supply sharply increases, it means that the price of foreign currency should decrease and the price of the national currency should increase. “I am saying this to put an end to the discussions that the Central Bank appreciated the Armenian dram. We see that the appreciation of the Armenian dram occurred objectively due to these phenomena,” he stated.

According to Galstyan, as a result of these flows, there was an appreciation of the nominal exchange rate. “Looking solely at nominal figures, our calculations indicate that if we hadn’t had the appreciation we experienced in April, May, and June, for example, the inflation in May compared to April would have been not 0.1 percent as it is factually, but 0.9 percent, meaning we would have had nine times more inflation,” the Central Bank Governor explained.

Thus, he concluded that if the dram had not appreciated, the inflation over the course of a month would have been 1 percent higher. “A certain level of the exchange rate was taken, around 480, and we said that if that exchange rate remained the same, meaning if we hadn’t had the appreciation of the nominal exchange rate, our inflation would have been not approximately 0, but 1 percent. If we make approximate calculations, we would have had about 3 percent more inflation,” the Central Bank Governor summarized.