MOSCOW, October 30. The Board of Directors of the Bank of Russia has retained second time in a row today its key interest rate at 11%, “given the significant inflation risks”.
According to experts, the regulator is wary of the unstable situation on the currency and oil markets, as well as a possible rate hike by the fed in mid-December. Almost all experts expect that the Central Bank will resume its cycle of lowering the key rate on December 11 and will reduce it by 0.5 percentage points
Inflation for the regulator is on the first place when deciding on the rate. “The main conclusion is that the Central Bank expects that inflation will be high, will be high inflation expectations, the Central Bank prefers to be neat”, shares his impressions from the decision of regulators, senior strategist at Sberbank CIB Vladimir Pantyushin. Chief economist of Gazprombank Maxim Petronevich explains the caution of the Central Bank have not otherwise effect of the recent weakening of the ruble. “Due to the September devaluation of the ruble, accelerated inflation. Although it is much smaller than expected, no signs of slowing down this inflation, according to weekly data,” he explains. According to Petronevich, the Central Bank decided to wait for the “first evidence that inflation surge ends”.
Annual inflation since the previous meeting has slowed slightly, from 15.8 to 15.6%. In this week’s inflation accelerated in October to 0.2%, which is a significant value even for October.
A clear signal
Clear signal to the market in today’s release grew, analysts say, which in itself is extremely important. The regulator in a press release following the meeting stated: “with the slowdown of inflation in accordance with the forecast of the Bank of Russia will resume the reduction of the key rate on one of the next meetings of the Board of Directors.” Previously this phrase was given a much more vague.
“Surprisingly, they comment very optimistic that they are ready to lower the rate. I hoped that they would be more cautious because of the external risks remain high that the fed will increase rates and oil prices not rising above $ 50 per barrel,” – says chief economist at Alfa Bank Natalia Orlova.
The Bank of Russia firmly believed in the inhibition of inflation. This thesis controller brings in a press release: “taking into account /today/ solve moderately tight monetary conditions and weak domestic demand will continue to contribute to the reduction of inflation.” Moving people from consumption to savings recorded on the days the Ministry of economic development. According to monitoring agencies for 9 months, in September retail trade in annual terms fell by 10.4%, which is the maximum reduction in the current year.
While the Central Bank of the Russian Federation reminds that the rate reduction is only possible if the failure inflationary risks have not gone away, is the “further deterioration of the external economic environment, the preservation of inflation expectations at an elevated level and the revision scheduled for 2016-2017 rate of growth of regulated prices and tariffs, indexation of benefits, and overall easing of fiscal policy”.
Hope for December
This year there was only one meeting on the key rate, which will be held on December 11. The date was not chosen very well: 15-16 December issue of the discount rate to solve the U.S. Federal reserve, and if the us regulator decides to raise the bet, it increases the pressure on the ruble, a number of experts. In addition, there are two internal risk for the ruble: the December peak of payments on external debts and a seasonal weakening of the national currency. For this reason, it would be wiser to sit after triggering all the risks, advise the regulator of a number of analysts.
In turn Maxim Petronevich of Gazprombank optimistic: the expert believes that on December 11 the Bank of Russia will be opportunities to mitigate the OST. “The fed can influence, but more and more experts are inclined to think that the increasing of the rate nor at the end of this year or early next will not. In many ways, the fed’s decision depends on optimistic statistics on the labor market, and the last time she worse than expected. A slower pace, the number of new jobs, the share of involvement of the population of working age economically active has reached the minimum values for 39 years,” he explains.
The rate reduction in December is possible if volatility in the currency market would be acceptable, adds chief economist for Russia and CIS “Renaissance Capital” Oleg Kuzmin. “We expect rate cut in December 50 b.p. in the base case, if the ruble will continue to feel fine and not very strong expectations about what the fed will increase rates on December 16. Rate and the Central Bank of the Russian Federation may not be reduced if the ruble will be about 70, which we do not expect, or if there are very strong expectations that the fed will raise rates in December,” he explains his forecast.
The ruble against the background of the decision of the Central Bank accelerated the growth. 5 minutes after the publication of the release, the dollar fell on the Moscow stock exchange at 45 cents compared with the close of yesterday’s trading to 63,95 of the ruble, falling below 64 rubles. The Euro declined by 26 kopecks to the ruble 70,41.