Dropping AMD rate adjustment to help maintain competitiveness: IMF

PanARMENIAN.Net - The decision of the Central Bank to adjust the exchange rate of Armenia’s national currency will help maintain the competitiveness of locally-manufactured goods and increase the purchasing power of remittances sent home by Armenian labor migrants, according to IMF Resident Representative Teresa Daban Sanchez, according to ARKA.

The value of the U.S. dollar against Armenian dram jumped by 16.6 points on November 24 to AMD 435 drams, updating the 8-year high. On December 2 it grew further by 7.07 points to AMD 442.33. On December 5 it has been trading at AMD 443.83.

At a news conference Ms. Sanchez stressed the importance of the exchange rate adjustment in preventing exporters, including food manufacturers, from facing serious difficulties and being forced to cut production.

She said the depreciation of the Armenian dram is the mechanism by which the economy is getting adapted to new conditions. She said the devaluation of the dram would push prices for some imported goods up, which in turn will contribute to the growth of competitiveness of some domestic goods.

According to the Central Bank, the adjustment of the exchange rate was caused by the need to improve the competitiveness of national exports and economize foreign exchange reserves.

As the IMF Resident Representative also noted, Armenia’s banking system has high liquidity, while the Central Bank has sufficiently large reserves. According to Ms. Sanchez, Armenia's banking system is liquid, the capital rate is high and the banks must have necessary buffers given the high dollarization of the economy to be able to cope with changes in the exchange rate.

According to Ms. Sanchez, Armenia’s Central Bank’s reserves should be comparable with three-month imports volume. This means that, on average, the amount of the Central Bank reserves is sufficient to ensure that in the hypothetical case of absence of dollars to be able to pay for three month import , while currently the regulator has enough reserves to pay for four-month imports.

Ms. Sanchez noted that under these circumstances, the Armenian authorities should focus on maintaining economic and financial stability by monitoring the developments in the context of the weakening dram. She also pointed out the need for short-term support for the economy and the implementation of ambitious infrastructure projects.

According to the Central Bank, it has sold this year about $236.5 million at the local forex market and bought $50.15 million.