Central Bank lowered its key interest rate

On Friday, June 10, the Board of Directors of the Bank of Russia lowered its key rate by 0.5 percentage points to 10.5% per annum. The last time the Central Bank reduced the rate on 31 July 2015.

Analysts and economists had expected such a decision, said the chief economist of the NRA Maxim Vasin. “According to inflation, the consumer price level has long been growing at a rate below the key rate. Probably, the policy of rate reduction will continue, although inflation and currency risks still remain,” he says.

The views of economists and analysts surveyed, in anticipation of meeting almost evenly divided: 15 of 32 experts believed that the Central Bank will leave the interest rate at 11% per annum, 17 — which will reduce rates by 50 b.p. to 10.5%.

Now there are all prerequisites for reducing the rate, said the head of analytical Department of Bank “Zenith” Vladimir Evstifeev: “the annual inflation rate was steady at 7.3%, the ruble has stabilized against the background of rising oil prices”, also, “the economy still needs support”. Decelerating inflation and the situation on the financial market theoretically create preconditions for even more aggressive reduction, said Director of macroeconomic policy Department and cluster analysis of Vnesheconombank Oleg Bolt. “But uncertainty about other factors such as oil prices and actions of the fed, forcing the Central Bank to be very cautious in their actions,” he added.

Economists Citi’s Ivan Tchakarov and Ekaterina Vlasova is also predicted that the Central Bank will cut rates by 50 b.p. but at the same time called for two reasons, because of which he can leave it as is. Firstly, the Central Bank is still not convinced that the recovery in oil prices will last long; secondly, the regulator continues to struggle with inflationary expectations.

Chief economist of Alfa Bank Natalia Orlova named three factors, which the Central Bank may leave the rate unchanged: firstly, the fed may soon raise rates, which will increase the volatility of the financial markets; secondly, from the beginning, accelerated wage growth, and this can increase inflationary pressure in the second half of the year; thirdly, the risk budget is: up to the end of the year the budget expenses will grow by 9% year-on-year, that is higher current inflation. The Central Bank will continue to operate in a conservative way and will postpone the rate reduction until the next sessions, he was sure the chief analyst of Bank “GLOBEKS” Alexey Balashov. “In this case the regulator will be able to wait for the reaction of financial markets to the referendum results in the UK and greater certainty in fed policy,” he said.