Central Bank of Armenia Executive Monetary Policy Statement November 2025

2025 November
Executive
Monetary
Policy
Statement
Published November 4, 2025

Executive Monetary Policy Statement | November 2025 2 A. Executive Monetary Policy Statement The Board of the CBA decided today to keep the refinancing rate unchanged at 6.75%. At its meeting today, the Board of the Central Bank of Armenia decided to keep the key policy rate (refinancing rate) unchanged at 6.75%. Annual CPI inflation increased slightly in Q3 2025, standing at 3.7% in September. Meanwhile, core inflation edged up, standing at 3.5% Y-o-Y in August. In Q3 2025, risks of a further slowdown in demand conditions globally and in Armenia’s key partner economies persist, while inflationary pressures in the US have intensified. Uncertainty surrounding US trade policy and its macroeconomic implications remains elevated. Uncertainty regarding the medium-term implications of US fiscal policy, including the impact of rising public debt on long-term interest rates, persists. Consumption in the US continues to drive relatively high economic growth and an elevated inflationary environment. However, risks of a correction in asset prices and labor market weakening could negatively impact the medium-term growth outlook. At the same time, in Armenia’s other trading partner economies, risks of weakening growth and demand are beginning to materialize. Oil prices continue to decline amid growing supply and weakening global demand, while food prices have shown some signs of softening. However, geopolitical uncertainty and tensions in international trade relations remain a key source of global inflation volatility. In this context, considering weakening demand conditions on the one hand and persistent inflationary risks on the other, central banks in major economies would be expected to either maintain or gradually ease their tight monetary stance. In the third quarter of 2025, economic activity in Armenia continued to accelerate. Demand continues to be driven by growth in demand-driven sectors as well as the impacts of certain short-term, non-structural growth drivers. Sustained, robust growth in the construction and services sectors has remained the key driver of overall economic activity. Following sustained declines in 2024 and Q1 2025, external demand for domestic goods and services has increased in Q2 and Q3. At the same time, uncertainty remains elevated regarding the future outlook for domestic demand. In this context, demand continues to have a neutral impact on inflation, while recent increases in headline and core inflation have been driven by supply-side factors. Wage growth, non￾traded sticky price inflation, and inflation expectations continue to stabilize. At the same time, risks for short- and medium-term demand pressures from fiscal policy persist. In the context of current macroeconomic developments, financial markets in Armenia generally expect the Central Bank of Armenia to gradually lower the refinancing rate over the next twelve months to approximately 6.25-6.50%. Amid high uncertainty, the Board discussed, on the one hand, Case
A-type scenarios where possible underlying developments would require a higher path for the policy rate relative to current market expectations. This includes scenarios related to risks of a rising US neutral rate in the context of fiscal policies, as well as risks of expanding demand conditions. On the other hand, the Board also discussed Case B-type scenarios where potential economic developments imply a more rapid and aggressive downward path for the policy rate than what is currently priced in markets. These scenarios include concerns regarding overall concerns about the outlook for the global economy as well as a weak demand environment forming and deepening in the economy due to a potential gradual adjustment of real estate prices. Seeking to manage the macroeconomic implications that could stem from Case A-type scenarios materializing, the Board finds it appropriate to keep the policy rate unchanged in the current round. The Board resolutely affirms its commitment to adopting the appropriate policy actions and strategy to ensure the price stability objective of 3% inflation in the medium term. Approved by the Board of the Central Bank of Armenia November 4, 2025 Governor Martin Galstyan Deputy Governors Armen Nurbekyan Hovhannes Khachatryan Board Members Artak Manukyan Levon Sahakyan Narek Ghazaryan Armen Ktoyan

Executive Monetary Policy Statement | November 2025 3 B. Summary of Economic Conditions Global Economy In Q3 2025, the global growth outlook has continued to deteriorate. In the US, the recent rebound in economic activity has primarily been driven by growth in consumption from high￾income households and increased investment activity in artificial intelligence. At the same time, labor market conditions continue to weaken, as reflected in rapidly slowing payrolls and slowing wage growth, particularly for low income earners. Income inequality and the concentration of growth continue to pose uncertainty to the medium-term outlook. Further, given risks of overvaluation in financial assets, price corrections could have negative impacts on US consumption and demand conditions, with global spillover effects. Amid these conditions, uncertainty surrounding the outlook for US economic policies—particularly trade and fiscal policy outlook—remains elevated. Given the significant expected expansion of the fiscal deficit and national debt, risks of a potential rise in long-term interest rates have deepened. Such developments could impact not only the future course of the Federal Reserve’s monetary policy but also impact the neutral interest rate in, and capital flows to, emerging markets. Trade policy and strong consumption continue to pose upside risks to inflation. While increases in imports and inventories at the beginning of the year helped shield consumers from increased prices, recent months have seen signs of growing inflationary pressures emerging for consumer goods most sensitive to tariffs. In this context, inflation has accelerated to 3.0% Y-o-Y in September. Looking ahead, the extent and nature of the impacts of trade policy on inflation would depend on the trajectory of domestic demand conditions. These issues significantly complicate the Federal Reserve’s trade-off between maintaining price stability and achieving full employment, a challenge that is further compounded by potential risks of deteriorating central bank independence. Euro Area economic growth has remained weak in Q2 and Q3, reflecting sustained structural challenges and economic uncertainty stemming from global trade policy. The inflationary environment continued to remain stable, with headline inflation converging around the target for several consecutive months. Meanwhile, although underlying inflation has moderated, services inflation still remains elevated, while tight labor market conditions exhibit mixed signals of softening. However, the medium and long-term growth outlook remains uncertain and problematic. On the one hand, structural challenges within the Eurozone and trade uncertainty continue to weigh on business sentiment and negatively impact investment and production. On the other hand, sweeping fiscal stimulus measures aimed at addressing structural challenges could have positive impacts on certain productive sectors, but the emphasis on increasing defense output could
have uneven and inflationary implications. Significant uncertainty persists surrounding the trajectory of oil prices. On the one hand, slowing global demand, coupled with a weakening of geopolitical tensions in the Middle East and continued supply increases in OPEC+ countries, could each support a downward trend for oil. On the other hand, the potential for an escalation in geopolitical tensions, as well as new sanctions against Russia, pose risks of supply chain disruptions and upward price pressures. In Q2 2025, Russia’s economic growth weakened significantly to 1.1% Y-o-Y. Slowing credit activity, persistent deceleration in trade and services, as well as planned tightening of tax administration, pose downside risks to domestic demand. Headline and core inflation, despite moderating somewhat in recent months, still remain well above target. At the same time, labor market conditions remain exceedingly tight, exerting sustained inflationary pressures on the economy, while the recent tightening of migration policy could deepen labor market pressures. Further, oil price uncertainty could pose risks to fiscal policy, while a weakening growth outlook could negatively impact non-oil and gas revenues and pose additional downside risks to the economy. The combination of weakening demand conditions, persistently tight labor market conditions, and high inflation expectations pose serious challenges to the Central Bank of Russia in managing the inflation-output tradeoff, even as the CBR continues to ease the policy stance. Domestic Demand Conditions In Q3 2025, economic activity continued to grow at a high rate, standing at 10.5% Y-o-Y in September. Growth in the third quarter was concentrated in demand-driven sectors including construction and services, which could pose risks to the future sustainability of growth and the long-term outlook. Construction continues to grow at a rapid pace, but persistent risks of a gradual adjustment in real estate prices could threaten growth in adjacent sectors, contribute to weakening demand conditions, and pose deflationary pressures. At the same time, while growth in services remains driven by IT and Financial Services, signs of acceleration in other services subsectors, especially in recent months, could point to a potential expansion in aggregate demand conditions. Since the beginning of the year, trade and industry continued to slow amid a gradual fading of certain short-term, non-structural factors. However, beginning in August, low value-add production of base metals have recovered. At the same time, traditional industrial subsectors continued to show positive signs, with strong growth in output, exports, lending activity, and production capacity. In summary, various signals point to a neutral or slightly positive output gap. Following record inflows in 2023, tourist flows to Armenia in 2024 and through 2025 Q1 had substantially moderated. However, between May and August, tourist flows to Armenia increased
significantly to historically high levels, driven by a recovery in tourism from Russia as well as significant growth from other, non-traditional markets. Tourism flows have naturally moderated in September, in line with seasonal patterns. On the whole, significant uncertainty regarding the outlook for external demand persists in both directions, driven by a weak global demand outlook on the one hand, as well as strong demand for Armenian goods and services and a persistence of current trends in remittance flows on the other. Uncertainties persist about seasonal migration to Russia and the channels through which remittances are transferred. On the one hand, a strengthening ruble could increase incentives for labor migration to Russia. On the other hand, an uncertain Russian economic outlook and tightening migration policies may act as limiting factors. The latter scenario could support labor supply growth in Armenia and pose deflationary risks.

Executive Monetary Policy Statement | August 2025 2 Uncertainty continues to surround domestic demand conditions. Strong growth in lending activity, high growth in services sensitive to domestic demand, and high accumulated savings that could be oriented toward consumption could point to robust domestic demand. Conversely, the structural characteristics of economic growth; the persistence of both non-traded sticky price and services inflation at low levels; as well as relatively flat retail trade and consumer goods imports, could point to a weaker demand environment. Regarding fiscal policy, considering strong revenue collection in 2025 YTD, risks of revenue underperformance have softened. At the same time, potential increases in current expenditures (particularly at the end of the year), given the importance of social assistance programs, could have short￾to medium-term implications on deficit and debt levels. At the same time, risks of capital expenditure underperformance, as well as the structural characteristics of these expenditures, could mitigate fiscal policy’s impact on aggregate demand. Looking ahead, considering uncertainty around future expenditure performance and tax revenue administration, the main uncertainties for fiscal policy relate to the trajectory for the public deficit and debt. Labor Market & Inflation Underlying labor market conditions remain a key source of uncertainty. Unemployment remains at low levels, standing at 12.3% in Q2. Per the labor market survey, labor resources in Q2 have increased Y-o-Y, but this has been at the expense of increases in the economically inactive population rather than employed persons. This could reflect weakening labor demand in the economy. At the same time, SRC data suggesting strong increases in the number of registered employees could point to high labor demand, although it also could reflect a gradual, structural decline in the shadow labor market in favor of formal employment. On the other hand, wage growth continues to stabilize in the range of 5-6%, and is somewhat more evenly distributed across sectors of economy than in recent quarters. This could suggest more balanced labor market conditions and fewer structural imbalances in the economy. In the medium and long term, a potential expansion in labor supply could ease labor market conditions further and reduce market-driven pressures. The primary uncertainties in this context relate to the Russian economic outlook, the flow of Armenian labor migrants to Russia amid tightening Russian migration policies, domestic labor market participation, and the integration of economically inactive populations into the workforce. Since the beginning of the year, inflation has shown some signs of accelerating, with CPI standing at 3.7% Y-o-Y in September, while core inflation stands at 3.5%. Inflationary pressures from the global economy, particularly for imported food, have increased since early 2025, in line with increases in global food prices
(FAO). However, amid a weakening in supply-side pressures, the growth rate of global food prices have somewhat softened in September (down to 3.4% Y-o-Y from 6.6% in August). Moving forward, the main uncertainties relate to whether these trends will persist, as well as the scale and pace of domestic price adjustments. Additionally, the deflationary pressures from non-food products observed in the beginning of the year have gradually subsided, entering weak inflationary territory in May and standing at 1.3% Y-o-Y in September. Services inflation has increased somewhat since early 2025, mainly due to high inflation for air transport services; excluding this subgroup, services inflation has remained stable and below target. At the same time, inflation for services highly exposed to external and domestic demand (e.g. hotels, restaurants, etc.) increased since May, consistent with increases in tourist inflows observed during this period. However, in tandem with the decline in tourism in September, inflation for these services has also softened. Non-Traded Sticky Price Inflation (NTSPI), which captures domestically￾driven demand dynamics, has continued to remain stable, in the range of 2.0- 2.5% Y-o-Y. In this context, inflation expectations have continued to steadily decline, approaching the target level, supported by a prolonged low-inflation environment. Financial Markets & Monetary Policy Market expectations of the CBA policy rate path have remained largely unchanged since the latest decisions, and continue to reflect an expected gradual reduction in the policy rate to 6.25-6.50% over the next year. The yield curve has declined in October. This could reflect improving sentiment toward emerging market bonds, declines in the country risk premium, increased liquidity in financial markets, as well as the gradual transmission of the impacts of monetary policy. In recent months, Armenia's country risk premium has remained below the long-term stable level determined by the country's fundamentals. In particular, recent declines could reflect a favorable reassessment of risks, supported not only by the easing of overall sentiment toward emerging markets but also by expectations of a cooling in immediate geopolitical risks in the South Caucasus. These factors, together with Armenia’s macroeconomic stability and growth in productive capacities, provide a basis for a possible reassessment of the country’s risk premium and reduction in the neutral rate, which, ceteris paribus, could exert deflationary pressures through a relatively tighter monetary policy stance. In this context, several rating agencies note that the ultimate, fundamental adjustments in the country risk premium in response to the above developments would come only after the expected economic implications materialize. On the other hand, any potential upward adjustment of the country risk premium would instead pose risks for a revision of the neutral rate to the upside, which, all else being
equal, could create inflationary pressures due to a more accommodative policy stance. Considering the persistence of numerous types of uncertainty, the CBA builds and evaluates several different scenarios for future economic developments in order to manage possible risks stemming from these key areas of uncertainty. The key Case A scenarios (policy rate path above market expectations) relate to risks of higher global neutral rates, uncertainty surrounding regional geopolitical developments, and risks of increasing aggregate demand conditions and various supply-side factors leading to a persistently higher rate of inflation. The key Case B scenarios (policy rate path below market expectations) pointed to concerns regarding a weak demand environment forming and deepening in the economy due to the gradual decline (adjustment) of real estate prices overall concerns about the outlook for the global economy; as well as higher productivity growth and a strong investment environment contributing to greater real exchange rate appreciation and a lower neutral rate.