Finance
Armenia Lifts Policy Rate to 6.75% in First Hike Since 2023
September 16, 2026
3
Min
The Central Bank of Armenia raised its policy rate by 25 basis points to 6.75% on 15 September, its first increase in more than three years, according to the regulator's statement reported by ArmBanks. The Board also set the Lombard repo rate at 8.25% and the deposit facility rate at 5.25%, Armenpress reported.
The move closes a long easing chapter. The CBA had cut steadily from 10.75% in June 2023 to 6.5% by December 2025, then held at that level through the summer. Tuesday's decision reverses direction at a point when the economy is, by the central bank's own reading, running faster than it can sustain.
Why the CBA moved now
Governor Martin Galstyan framed the hike as a response to three pressures: stronger domestic demand, expanding external demand and rising inflation expectations, according to Armenpress. Twelve-month inflation stood at 4.4% in August, above the bank's target, while core inflation was 4.8%.
Growth accelerated in the second quarter to a pace above its long-term sustainable level, Galstyan said, with construction and services doing most of the work. The bank reads the surge in imports of final consumption goods and in retail trade as evidence of excess demand. A sharp rise in visits to Armenia is adding external demand on top, which the CBA fears could feed faster wage growth and services inflation.
The external backdrop was also cited: elevated energy prices tied to Middle East tensions, deepening structural problems in the eurozone and Russia, and a growing chance that major central banks keep rates higher for longer.
The counterweight: Russia's export restrictions
The decision was not one-sided. Galstyan acknowledged risks of excess supply forming at home and of weaker consumer and investment confidence as a result of restrictions on exports to Russia, the same restrictions that have hit Armenian farmers, dairy producers and fish farmers this year. The Board weighed scenarios requiring a higher rate against those that would argue for holding, and chose the former by the smallest available step.
Market participants, according to the governor, on average expect the rate to stay at its current level over the next year before easing to 6.25% over the medium term. That is a signal of a plateau rather than the start of a tightening cycle, though the bank has not committed to either path.
Reserves and the dram
The hike comes with the external position at its strongest on record. Gross reserves rose to $6.5 billion in August, equivalent to 4.3 months of imports, the World Bank said in its September monthly update, as reported by ArmBanks. Net non-commercial remittances were up 40% year on year in July, driven by inflows from Russia, and net cross-border transfers to individuals reached $1.56 billion in January-July against $716.6 million a year earlier.
Those flows have kept the dram firm: 4.6% stronger against the dollar than in August 2025, though 8.6% weaker against the rouble. A strong currency has not neutralised imported inflation, however; the World Bank notes that food and non-alcoholic beverages still account for 57% of inflation even as their price growth slowed from 8.6% in June to 6.4% in August.
What it means for borrowers and banks
A 25-basis-point move will not by itself reprice Armenia's loan book, which grew 23.6% in the first half. But the direction matters. Banks that have been competing on rate for retail and mortgage lending now face a regulator signalling that demand, not supply, is the problem. The corporate bond market, where recent tranches have priced near 11.7%, will watch whether the CBA's plateau holds.
The caveats are real. Inflation at 4.4% is above target but not far from it, and a large share of the pressure is food and energy the CBA cannot control. If Russian trade restrictions bite harder into exports in the fourth quarter, the demand overhang the bank is worried about could shrink on its own, in which case Tuesday's hike may prove to be the only one.
