According to the Central Bank of Armenia, annual inflation in the country accelerated during the second quarter of 2025, reaching 4.3% in May. This information is detailed in a report published by the Central Bank’s Board.

Core inflation also increased, hitting 2.8%. The Bank evaluated that the continued weakening of demand globally and among Armenia’s main trade partners was accompanied by renewed inflation risks, especially in the U.S., Panorama.am reports.

During its June 17 meeting, the Board decided to maintain the refinancing rate at 6.75%, citing current economic conditions.

“Tensions in global trade relations and the sharp escalation of geopolitical conflicts—particularly in the Middle East—have significantly increased risks of disruption in supply chains,” the decision noted.

The Bank also pointed to the potential consequences of U.S. fiscal stimulus, such as rising public debt, long-term interest rate increases, and tight labor markets in partner countries—all of which have contributed to a persistent inflationary environment.

According to the report, economic activity in Armenia has slowed this quarter due to the gradual fading of short-term, non-structural growth drivers. Nonetheless, the construction and services sectors have continued to significantly support growth. Meanwhile, the Bank observed high uncertainty regarding growth sustainability, long-term outlooks, and domestic demand dynamics.

External demand for services continues to decline, the Bank noted.

“Overall demand is seen as having a neutral effect on inflation, while the current acceleration is mainly driven by supply-side factors. Labor market conditions have somewhat eased, seen in wage trends and inflation stabilization in services with rigid pricing, alongside a gradual settling of inflation expectations,” the report stated.

The Bank sees mostly inflationary risks from fiscal policy in the medium term. Given current macroeconomic developments, market participants generally expect the Bank to gradually lower its policy rate to around 6.25% in the medium term. The Board reviewed several policy scenarios in light of the outlined risks and prevailing uncertainties.

The Board examined Type A scenarios, involving geopolitical developments and fiscal policy shifts in the U.S. and Armenia, which would justify a higher-than-expected neutral rate and a tighter policy path to control inflation and maintain price stability.

Type B scenarios were also considered, suggesting that if external demand continues to fall, certain sectors could face disproportionately slower growth. These scenarios would imply a deeper and faster rate cut to support demand and stabilize inflation around the target in the medium term.

After assessing all risks and their macroeconomic implications, the Board, giving more weight to Type A risks, decided to keep the refinancing rate unchanged at this stage.

“The Board will continue to monitor economic developments and is ready to take appropriate actions to ensure a 3% inflation target and price stability over the medium term,” the Central Bank concluded.