Armenia’s Central Bank Governor Martin Galstyan warned on Tuesday that the ongoing military escalation in the Middle East could raise inflation in Armenia by 1.2–1.7%, as higher oil prices, supply disruptions, and pressure on imports and external demand create new risks for the economy. Despite those concerns, the Central Bank’s Board decided at its March 17, 2026 meeting to leave key policy rates unchanged.
Following this assessment, the Central Bank’s Board decided at its March 17, 2026 meeting to keep key policy rates unchanged: the refinancing rate at 6.50%, the Lombard repo facility rate at 8.00%, and the deposit facility rate at 5.00%.
According to the head of the Central Bank, the conflict could affect Armenia through several channels. The most significant is the impact on the global economy, including developments in major economies such as the United States. “The conflict in the Middle East increases stagflation risks. On one hand, it raises the risk of an economic slowdown; on the other, it carries the potential for higher inflation, which would be quite undesirable for us. If global economic activity declines, it will inevitably affect Armenia’s domestic growth. Reduced external demand could also have psychological effects, for instance, discouraging potential tourists from visiting Armenia,” he explained.
Other risks include logistical challenges for Armenian companies exporting to Middle Eastern markets, which could restrict export volumes, and developments in oil prices, which not only affect inflation directly but also increase production costs, potentially driving broader price rises. “Combining all these factors, we see both disinflationary risks from weak demand and inflationary pressures that could push prices higher,” Galstyan said, noting that March economic data will provide a clearer picture.
“Our estimates indicate that inflation could be around 1.2–1.7%. Other contributing factors include rising oil prices, some price increases from alternative import routes, and partial substitution of food products imported from Iran. This falls within the realm of risks, we are not saying it will happen, but if it does, the impact on inflation would be 1.2–1.7%,” Galstyan said when asked about the possible effects of the escalation.
At the same time, the governor does not see major risks to real estate prices or to mortgage repayment capacity. “If the conflict unfolds along the lines of a Syrian-type scenario, it could have severe effects on Armenia and neighboring countries. But for now, there are no grounds for such developments. We will continue to monitor the situation closely and intervene if necessary,” he added.
The Bank’s first-quarter monetary policy statement highlighted that annual inflation accelerated to 4.3% in February, while core inflation rose to 4.7% year-on-year. Risks of a further slowdown in global demand, particularly in Armenia’s key partner economies, have increased. In the United States, structural changes in the technology sector, potential financial market corrections, a weakening labor market, and rising public debt could weigh on medium-term growth. While the impact of US trade policy has eased somewhat, uncertainty remains over long-term interest rates and tariff revenues.
In Armenia’s other partner economies, weakening growth and demand are gradually materializing, while geopolitical tensions and supply chain concerns continue to fuel global price volatility. Rising oil and food prices amid the Middle East crisis add to these inflationary risks.
Domestically, Armenia recorded strong growth in the fourth quarter of 2025, driven by construction, services, and manufacturing. The Central Bank noted that uncertainty around demand conditions and fiscal expansion could add inflationary pressures. Private wage growth, sticky prices in services, and inflation expectations continue to show signs of stabilization.
The Board considered two main scenarios: one involving stronger inflationary pressures requiring a higher policy rate, and another reflecting weaker global growth and reduced domestic demand, which could justify a lower rate path. Balancing these risks, the Bank opted to maintain the current policy rate and emphasized that it will continue monitoring developments to ensure the 3% inflation target and overall price stability in the medium term.
