One week ago the representative of the International Monetary Fund in Armenia, Ninke Omes, diplomatically threatened the Central Bank of Armenia not to keep the exchange rate of the Armenian dram stabile by selling dollar all the time.
The IMF representative says the IMF has foreign currency reserve limits, which should be provided by the Central Bank during the year. If this limit is violated and the CB sells more foreign currency and the foreign currency reserves reduce lower than the mentioned limit, the IMF will not provide financial support anymore to recover this balance. The IMF representative said that the Armenian CB had not crossed the limit yet but said the following: “If the situation continues in the same manner as during the past two weeks, there may be problems.” By referring to the situation of the past two weeks she means that a lot of dollars have been sold to keep the exchange rates stabile.
One week has passed since the announcement. It was expected that the CB would take this announcement into consideration and take the situation out of control again. The IMF representative says the CB should not resist the tendencies in the market of foreign currency. While this woman was petitioning the government not to prevent the floating of the foreign currency, the NASDAQ OEMEX ARMENIA was busy with foreign currency trade: during this day $3.65 million was sold at a price of 388 dram for one dollar. The closing price was 388 dram.
During the next days the situation was the same and even more intensive. On November 13 in the NASDAQ OEMEX ARMENIA $10.39 million was sold, and on November 16 – $6.675 million, on the 17th – 800 thousand, and on November 18 – $6.04 million dollar. It means that since the day when the IMF representative threatened the government totally $27,555k was sold in the foreign currency stock market of Armenia. The closing rate was 387.5 dram.
It is hard to guess what the reason of the CB’s policy was. Maybe they believe it is better for the economy to control the floating of the currency. Or, maybe they want to make the IMF representative understand that Armenia is an independent country and is free to decide what policy to adopt. Or, maybe they don’t care about the international regulations. Hardly this situation may last long. If the CB stops the interventions, it will rapidly encourage the appreciation of dollar. The CB cannot intervene all the time because its resources are limited as well. The import capacity has been cut down by one billion dollar, thus as a result the demand to dollar has been increased as well, but on the other hand the money transfer inflow capacity from abroad has been increased as well. We cannot estimate the level of its influence. Both businesses and experts assure that the exchange rate of dollar will drastically grow. For example, ex-president of the CB Bagrat Asatryan proves this point by referring to the fact that the trade banks have significantly increased the portfolio of borrowings in foreign currency.
According to the information of the Armenian statistics services, if the capacity of credits and borrowings provided in foreign currency was 38% in the gross portfolio in the end of 2008, in September of 2009 this capacity reached 50% (see below). The capacity of borrowings provided in the national currency was cut down from 386.8 billion to 313.4 billion.
It means that the trade banks have secured their risks from depreciation of the national currency. People trust the foreign currencies more too.
The deposits and credits in the Armenian Dram have been cut down from 227.4 billion to 176.4 billion. People are more cautious as they have the experience of March 2. In a word, the citizens, despite the assurances of the CB, have exchanged their savings into foreign currency and are waiting for the national currency depreciation again. Maybe they will be happy for that.