Armenia's central bank raised its policy rate by 25 basis points to 7 per cent, its second consecutive increase after nine months at 6.5 per cent. The Lombard rate moved to 8.5 per cent and the deposit rate to 5.5 per cent, extending a tightening cycle that markets had not expected to resume until early 2027.
Economic growth slowed in the third quarter but remained above the level the bank considers sustainable. Construction and services continued to support activity, while consumer imports and retail spending indicated that domestic demand was still strong enough to keep pressure on prices.
Annual inflation eased only slightly to 4.3 per cent in September from 4.4 per cent in August, remaining above the 3 per cent target. Core inflation was 4.7 per cent and non-traded inflation, including rents and local services, stayed near 4.4 per cent, suggesting that the problem was not limited to imported goods.
Labour and migration patterns are adding to that persistence. Longer stays by visitors from Russia and the return of Armenian workers have supported property and service demand. Wages in parts of the service economy are rising by 10 to 12 per cent, far above the roughly 4 to 5 per cent pace in the broader private sector.
Fiscal policy is another source of pressure. The health-insurance programme had already spent 120 per cent of its annual budget by September, while capital expenditure fell 25.3 per cent from a year earlier. That combination raises current demand without delivering the same expansion in productive capacity.
External risks remain unusually wide. Restrictions affecting Russia, global interest rates, oil and food prices and the timing of production at the Amulsar gold mine could alter the exchange rate and export earnings. Unemployment estimated around 12 to 14 per cent also limits how aggressively policy can tighten.
Bond markets have begun to price a longer period of restraint, with short yields up around 0.4 percentage point and longer maturities roughly 0.7 point higher. The bank's task is to cool excess demand without stalling investment, and the November increase shows that it currently sees persistent inflation as the greater risk.
