On April 28, the Central Bank published its annual report, summarizing the results of 2016. As usual, in 2016 the central bank's policy is aimed at ensuring price stability. The year was marked by deflationary trends, the following reasons are presented in the report.
•The fall of prices on the world market during 2015-2016.
• The growth of agricultural products
• The volume of private transfers from abroad, therefore, the reduction of domestic demand;
• Reduction of gas prices in July 2016. Central Bank's data shows that the Consumer Price Index in 2016 is negative
The same was also held during the first quarter of 2017, but the decline was accompanied by deflation rates. The decline in prices of consumer goods basket is a positive thing in terms of citizens. However, ongoing deflation is negative for economy. The decreasing product price trends are deprived of incentive to producers to expand their production. The principle known as the law of supply in Economics: along with the increase in production volume, price increases, and vice versa.

-CPI compared to the same period of the last year

Thus, in 2016 Central Bank was carrying out a policy of expanding the money supply through the reduction of the refinancing rate to ensure the stability of prices.
Typically, this results in a reduction of interest rates in the financial market, which is an incentive for investments, because they result in cheaper credit resources. The low interest rates stimulate the growth of domestic demand, due to which the prices begin to grow.
Thus, already in 2017 it has been possible to reduce the deflation. It has been by contribution of the increase in private remittances from abroad in the first quarter of 2017. Central bank data also shows that, compared to the same period in 2016 the volume of remittances through the banking system has grown.

The volume of remittances through the Armenian banking system from abroad, thousand dollar

Junuary 16, February16, Murch 16, April 16, May16, June 16, July 16, August 16, September 16, October 16, Nevember 16, December 16

Summarizing, we can conclude that expansionary policy adopted by the Central Bank, along with targeted growth of remittances, reached certain results. The trend of lower interest rates and funding from external sources may contribute to the short-term growth of profits of citizens, which will create a basis for increasing the level of demand.

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