Armenia should take steps to tackle inflation -IMF

Monday December 10 2007
Guardian Unlimited, UK
Source: Reuters

WASHINGTON, Dec 10 (Reuters) - Armenia's economy is growing at a double-digit clip that has helped ease poverty, but the country must take steps to curb price pressures, while the currency will probably continue to appreciate, the IMF said on Monday.

"Monetary policy will need to be tightened in light of rising inflationary risks," the International Monetary Fund said under a regular review of Armenia's poverty-reduction facility, which expires next May.

Consumer inflation is projected to average 6.3 percent next year, up from 4.3 percent in 2007, the IMF said, with economic growth of 11 percent this year and 10 percent in 2008.

The central bank raised interest rates in three steps of aquarter-percentage point each between July and November. The banking rate is now 11 percent and the repo rate 5.75 percent.

In addition, the central bank lifted its inflation target to 4 percent from 3 percent, a move that the IMF said it had opposed.

"A firm commitment to a medium-term inflation target will be critical for anchoring price expectations and building credibility in the transition to full-fledged inflation targeting," the IMF said.

The Armenian dram was also expected to continue to advance against the dollar due to persistent foreign-exchange inflows, which may harm the country's export competitiveness.

This means Armenia must step up efforts to lift domestic competition and keep fiscal policy tight, the IMF said.

It also warned that mounting infrastructure and poverty-reduction spending will increase budget pressures, and it urged the government to meet this demand for additional public finance by strengthening tax collection methods. (Reporting by Alister Bull; Editing by Jan Paschal )

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