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CB: rapid transition from fixed exchange rate to floating more effective

PanARMENIAN.Net - The RA Central Bank has made a decision to limit its intervention in the foreign exchange market and return to the policy of the floating rate in order to eliminate the dram devaluation expectations, said Vache Gabrielyan , the Deputy Chairman of RA Central Bank at the press conference.

He emphasized that the gradual transition from the fixed rate to the floating rate would have been "less effective and cost more. Such is Russia's experience where despite huge expenditures, the inflation expectations do not change. The experince of countries like Georgia, Kazakhstan, Russia, Belarus where this transition was taking place gradually proves that devaluation and inflation expectations are not eliminated. Whereas in countries where such transitions take place more abruptly, the currency devaluation expectations are eliminated considerably faster," he added.

"Overall, said Gabrielyan, the Central Bank, in fact, has not changed its policy in long-term period and from the point of view of macroeconomics has never made any claims about the transition to the fixed rate. A considerable pressure on the currency rate of Armenia became obvious still in autumn when the country could not import sufficient goods because of the military actions in the neighbouring Georgia. If the Central Bank had allowed sharp fluctuations of the currency rate, it would have caused considerable problems from the point of view of financial stability, so rate was temporarily fixed. The return to the policy of floating rate in Armenia was necessary to immediately eliminate the national currency devaluation expectations", said Gabrielyan adding that the stability and liquidity of the bank system based on February monitoring results also contributed to it.

The day before, only within several hours, the dollar rate in Armenia rose dramatically to 360dram per $1, the euro rate reached 440drams. The dollar rate at exchange offices had been 305-310 per $1, the euro rate-387 accordingly. The basic reason for such sudden surge of foreign currencies against the dollar was the statement made by the head of RA Central Bank, Arthur Javadyan, according to which the Central Bank of Armenia has made a decision to limit its interference in the foreign exchange market and to go back to the policy of the floating exchange rate.
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