What is Monetary Policy?
This section provides an in-depth look at the Central Bank of Armenia's approach to monetary policy, including its tools, key principles, and historical context.
This section provides an overview of the Central Bank of Armenia's (CBA) monetary policymaking, detailing its approach, framework and evolution over time. It begins with an explanation of how the CBA implements monetary policy to achieve its price stability objective. It discusses the channels through which changes in policy rates affect aggregate demand and inflation and explains the importance of managing inflation expectations and how policy decisions are gradually transmitted throughout the economy.
Further, it discusses the monetary policy tools and instruments the CBA employs to achieve price stability, particularly the refinancing rate and open market operations. It outlines how these tools help manage short-term market rates and guide the economy toward its inflation target. The CBA sets its policy rates through regular decisions made at fixed intervals, aiming to influence broader economic conditions.
Next, it explores the key pillars of effective monetary policy, such as central bank independence, transparency, and accountability. It explains how these principles enhance the credibility and effectiveness of the CBA’s policies, ensuring long-term stability and fostering public trust. Communication and forward guidance are also emphasized as essential to shaping market expectations and supporting the CBA’s credibility.
Finally, the section traces the history and evolution of monetary policy in Armenia. It covers the introduction of the dram in 1993, the shift to monetary aggregate targeting, and the move to inflation targeting in 2006. It concludes with the introduction of the FPAS Mark II framework in 2024, which reflects Armenia’s adaptation to increasing economic uncertainties. Throughout these changes, the CBA has made significant investments strengthen its monetary policy framework, culminating in the reduction of the inflation target to 3% in 2025. This historical overview highlights the progression of Armenia's monetary policy and its role in maintaining price and macroeconomic stability