Central Bank leaves key rate unchanged


The Board of Directors of the Central Bank on July 29 decided to keep the key rate unchanged at 10.5 percent. The Board of Directors of the Bank of Russia noted that the dynamics of inflation and the emerging recovery of economic activity mainly correspond to the baseline forecast. “The decision and the further maintaining a moderately tight monetary policy will contribute to achieving the inflation target”, — reads the statement of the Central Bank. According to the forecast of the Bank of Russia, the annual growth rate of consumer prices will amount to less than 5% in July 2017 and will reach the target level of 4% at the end of 2017.

According to the chief economist of consulting company “PF Capital” Eugene Nadorshin, accelerated from late spring until inflation gives the Central Bank to lower the rate. In June and July, consumer prices rose 7.5% yoy vs. 7.3% in may. The risk of growth of consumer prices for the CB is much more important than economic growth, explains Nadorshin. The economist also reminds that from August 1, stricter requirements to reserves of banks, which, in his opinion, implies a tightening of monetary policy.

According to the chief analyst of Sberbank Mikhail Matovnikov to reduce the key rate have more long-term and sustainable reduction of inflation. “In addition, falling oil prices, the ruble is reduced, all this can lead to another fall in prices, and these arguments work against a rate cut,” he says.

Pause by the Central Bank can be caused by including external factors, said the chief economist of the Eurasian development Bank Yaroslav Lissovolik. On 27 July, the fed left the rate unchanged, at 0.25–0.5% per annum. Thus, in his view, the fed’s comment suggests that she may, before the end of the year to raise the key rate, and this increases the risk of fluctuations in the global markets.

While Lissovolik believes that the Russian Central Bank before year end may reduce its key interest rate to 9.5%, “But this will happen only under the condition that the external background is favorable,” he says.

The last time the Central Bank reduced the rate from 11% to 10.5% per annum at the previous meeting on June 10. It was the first decline in the key rate since June of last year. Then the Central Bank explained its decision by the stabilization of inflation, lower inflation expectations and risks, and prospect of economic recovery. At the same time the Bank of Russia lowered the forecast of inflation by the end of 2016 to 5-6%.