Our Price Stability Objective
This subsection explains the primary objectives of the Central Bank of Armenia (CBA), which are to ensure price stability and financial stability. It emphasizes that these goals are means to improve the nation's welfare, with price stability defined not as fixed prices, but as a steady, predictable inflation rate and well-anchored inflation expectations. The CBA sets a numerical inflation target to guide price-setting decisions and shape inflation expectations.
As enshrined in Article 83.3 of the “Constitution of the Republic of Armenia” and in the 4th Article of the “The Law of the Republic of Armenia on the Central Bank of Armenia (CBA),” the primary objectives of the CBA are to ensure price stability and financial stability. We emphasize that the primary objectives of price stability and financial stability are a means to an end. The ultimate purpose of the CBA as an accountable public-sector institution is improving the welfare of our nation.
Price stability does not imply that all prices remain unchanged over time. Rather, true price stability reflects both a gradual and steady increase in inflation as well as well-anchored expectations for inflation in the long-term. In a dynamic and ever-changing economic environment, maintaining a clear, relevant, and predictable price stability objective is crucial. We understand the importance of communicating our objectives in a way that is easily understood by individuals and businesses. By doing so, we strive to create an environment where all stakeholders can navigate the economic environment confidently and make informed decisions for their financial well-being.
To define and achieve price stability, the Central Bank of Armenia sets out a numerical point target for inflation in the medium term that is consistent with this understanding of price stability. A credible and clearly communicated inflation target serves as an important benchmark for price-setting decisions (e.g. prices and wages) and forming inflation expectations. The selection of the numerical point target should reflect the specific economic characteristics and undercurrents that are unique to that given country, and that take into account issues related to accurately measuring inflation.1
The Central Bank of Armenia’s goal for price stability is for the increase in inflation to be low and stable. In 2025, the Central Bank reduced the inflation target to 3%, down from the previous target of 4%. This adjustment reflects recent developments and achievements in Armenia’s economy and monetary policymaking framework, providing a solid foundation for the Central Bank to continue strengthening public confidence in monetary policy, developing the policy framework, and implementing long-term reforms. The decision to set a lower inflation target better aligns with the perception of true price stability and the current structure of the financial and economic system. The 2025 Budget Law states that the Central Bank of Armenia should be guided by a year-over-year CPI inflation target of 3%, with a variation band of ±1.0 percentage points, when making monetary policy decisions.
1 Practical challenges in accurately measuring inflation, such as commodity substitution bias and quality change bias, can lead to an upward bias in headline inflation. For example, consumers may switch to cheaper alternatives when prices rise, but the consumer basket doesn’t adjust in real-time, overstating inflation. Additionally, inflation may increase due to quality improvements in products, such as replacing old TVs with higher-quality models, which reflects a change in quality rather than pure price increases.