The Central Bank has decided to cut the refinancing rate by 0.25 percentage points and set it at 6.50 percent. According to the regulator, twelve-month inflation slowed in the fourth quarter of 2025 and reached 3.1 percent in November. At the same time, core inflation increased slightly to 3.8 percent. The Central Bank also warns of risks linked to slower global demand growth. It highlights potential inflation acceleration in the United States. Former Armenian finance minister Levon Barkhudaryan explained the reasons for this decision and its possible implications for citizens and businesses.
Refinancing Rate Cut: Positive, but with Limited Impact
According to Barkhudaryan, a refinancing rate cut is generally a positive step if it does not trigger additional inflationary pressure. The main benefit is improved access to money. Lending volumes may increase moderately and be directed toward business activity.
“A 0.25 percentage point cut is not large, but the trend is clear,” he notes. This also indicates that inflation remains under control. He expects annual inflation to reach around 3.5–4 percent and stay below the 4 percent level.
Barkhudaryan recalls that Central Bank and government programs set the inflation target at 3 percent with a tolerance range of ±1.5 percent. This means that the effects are calculated and managed through coordinated monetary and fiscal policy.
Economic Activity without an Investment Boom
Under equal conditions, Barkhudaryan says, the main goal of a refinancing rate cut is to stimulate economic activity. It also aims to make money more accessible for businesses and households. Overall, this is a positive development. However, its impact is limited when it comes to deep economic growth.
He notes that it is difficult at this stage to speak about rapid industrial or agricultural expansion. A major investment boom is also unlikely. Current average bank interest rates tend to support trade rather than long-term investment projects.
“When banks lend at 15 percent, that rate is already very high,” he stresses. Production investments require time. Construction, equipment installation, and the launch phase all take months. During this period, high interest rates become a heavy financial burden.
When External Credit Is More Affordable
Barkhudaryan recalls cases in which Armenian producers and entrepreneurs secured external loans at 3–4 percent without state guarantees. These projects, he says, were implemented successfully.
This example highlights the scale of the gap. It also shows how much work Armenian banks must do to gradually lower interest rates. He adds that this process can also be supported by reducing deposit rates. “If a bank pays 9 percent on deposits, it cannot lend at 7 percent,” Barkhudaryan explains.
In his view, interest rates may decline significantly over time. However, a qualitative shift would occur if a peace agreement is signed and borders are opened. In that case, economic and investment interest in Armenia could increase substantially.