Armenia's Central Bank Raises Key Interest Rate to 7%: Inflation Stands at 4.3% in October

Armenia's Central Bank raised its refinancing rate by 0.25 percentage points to 7% on November 3. In October, inflation stood at 4.3% year-over-year, according to the Armenian Statistical Committee. The bank’s inflation target is 3%, with a tolerance of 1 percentage point. Inflation is thus above the upper limit of 4%.

This is the second increase in two months. On September 15, the Central Bank raised the rate from 6.5% to 6.75%. Prior to that, it had kept the rate at 6.5% since December 2025. In December 2022, the rate had stood at 10.75%. Starting in June 2023, the bank had gradually lowered it.

Demand and Prices Drive Inflation

Prices for food and non-alcoholic beverages rose 5.6% year-over-year in October. Prices for restaurants and hotels also increased by 5.6%, while those for alcohol and tobacco rose by 7.6%. Transportation prices fell by 0.5% from the previous month but remain 2.4% higher than a year ago. Hovak Hovakimyan, director of the brokerage firm Freedom Broker Armenia, provided this breakdown in an interview with ArmBanks.am.

Hovakimyan points to signals from the central bank: It sees persistent signs of excess demand. He does not expect another rate hike in December. In his statement on November 6, he said: “We expect a pause at the current rate of 7.0% at the next meeting.” The likelihood of further hikes would increase if oil prices remain high. He cites Brent at around $95 per barrel.

The market is pricing in higher interest rates

Since September 15, the yield curve for government bonds denominated in dram has risen, continuing through November 4. For maturities of up to one year, it increased by about 0.5 percentage points. For maturities over five years, the increase was 0.6 to 0.8 percentage points. These figures also come from Hovakimyan.

Martin Galstyan, the chairman of the central bank, downplayed concerns about more expensive loans on October 29. In an interview with the Hetq portal, he said that an interest rate hike does not necessarily mean higher borrowing costs: “We will see the changes that occur in a highly competitive market.” The quote was made the day before the decision. He declined to offer any predictions regarding the decision itself.

For German investors and exporters, this means that financing in drams will become more expensive, especially for long-term loans. Anyone financing projects in Armenia in the local currency should hedge against interest rate risks and consider fixed-rate offers. Exporters who grant payment terms should base their calculations on a dram policy rate of 7% rather than the level seen in the spring.

Sources: Central Bank of Armenia (EN), Statistical Committee of Armenia (EN), ArmBanks.am, and ARKA (EN)

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