Armenian currency tumbles amid economic woes
Armenia`s national currency plunged on Tuesday after
the country`s central bank floated the Dram due to the financial
crisis. Immediately after the measure, the dollar rate rose 30 per
cent to 410 Drams.
The bank announced that due to financial and economic crisis, worsening terms of trade and slowing capital inflows, it had made a decision to limit currency interventions and return to free float policy.
Experts say the South Caucasus republic, which possesses currency reserves worth only $1.2 billion, lacks funds to regulate its financial market.
Artur Javadian, chairman of the Armenian central bank, confirmed at a press conference on Tuesday that the country`s policy on currency rates would be liberalized. He noted that according to research, the Dram`s exchange rate is expected to average 360-380 to the dollar this year, starting now.
"The central bank`s interference with the market will be insignificant. This interference will be aimed at countering sharp fluctuations in currency rates," Javadian said.
The central banker claimed that Armenia`s financial system remained stable, saying local banks that have liquidity of about $700 million were ready to weather future crises.
He also said inflation was expected to make up 8-9 percent in the country by the year-end.
The sliding Dram rate is likely to drive up prices for imported goods, analysts say. Moreover, those borrowing bank loans in dollars will incur losses when repaying them due to the ongoing devaluation. But first and foremost, the fall in the national currency rate will reduce the purchasing power of consumers.
Of note, the policy of the Armenian state has also affected the Euro, whose rate has risen from 390 Drams to 440 Drams.
Meanwhile, prices for basic goods in Armenia have started to rise. Armenia Today news agency reported that granulated sugar and butter have become more expensive in stores in the capital Yerevan. A number of store networks suspended sales for several hours to revisit pricing policy. In addition to that, gasoline prices have increased.
In the wake of economic woes, Armenia has turned to outside sources for assistance. Last month it agreed a $500 million stabilization loan from Russia, and is negotiating with the world`s leading financial institutions to secure a further $525 million to support local businesses.
The bank announced that due to financial and economic crisis, worsening terms of trade and slowing capital inflows, it had made a decision to limit currency interventions and return to free float policy.
Experts say the South Caucasus republic, which possesses currency reserves worth only $1.2 billion, lacks funds to regulate its financial market.
Artur Javadian, chairman of the Armenian central bank, confirmed at a press conference on Tuesday that the country`s policy on currency rates would be liberalized. He noted that according to research, the Dram`s exchange rate is expected to average 360-380 to the dollar this year, starting now.
"The central bank`s interference with the market will be insignificant. This interference will be aimed at countering sharp fluctuations in currency rates," Javadian said.
The central banker claimed that Armenia`s financial system remained stable, saying local banks that have liquidity of about $700 million were ready to weather future crises.
He also said inflation was expected to make up 8-9 percent in the country by the year-end.
The sliding Dram rate is likely to drive up prices for imported goods, analysts say. Moreover, those borrowing bank loans in dollars will incur losses when repaying them due to the ongoing devaluation. But first and foremost, the fall in the national currency rate will reduce the purchasing power of consumers.
Of note, the policy of the Armenian state has also affected the Euro, whose rate has risen from 390 Drams to 440 Drams.
Meanwhile, prices for basic goods in Armenia have started to rise. Armenia Today news agency reported that granulated sugar and butter have become more expensive in stores in the capital Yerevan. A number of store networks suspended sales for several hours to revisit pricing policy. In addition to that, gasoline prices have increased.
In the wake of economic woes, Armenia has turned to outside sources for assistance. Last month it agreed a $500 million stabilization loan from Russia, and is negotiating with the world`s leading financial institutions to secure a further $525 million to support local businesses.
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