MOSCOW, September 15. /TASS/. The Board of Directors of the Bank of Russia at the meeting on Friday lowered its key rate for the fourth time in a year, from 9% to 8.5% per annum, which became possible thanks to the historically low level of inflation. However, the regulator warned that inflation expectations among households and businesses remain very high.
Taking the decision to reduce the key rate of the Central Bank has taken into account the slowdown of inflation in August to 3.3% from 3.9% in July, while the target benchmark of 4% for the year. In the beginning of September inflation has slowed even more – in annual terms by 11 September it amounted to about 3.2%. In such inflation, the rate cut was expected by almost all experts polled by TASS. The Central Bank has stressed that he is ready to lower the rate further.
“On the horizon the next two quarters, the Bank of Russia admits the possibility of lowering the key rate. Deciding on the key rate, the controller will be based on the risk assessment substantial and sustained deviations of inflation from the target, and the dynamics of consumer prices and economic activity in relation to the forecast”, – reads the statement of the Central Bank. The next meeting of the Board of Directors of the Bank of Russia, which will address the question about the key rate, scheduled for October 27.
However, despite the consistent slowdown in inflation, inflation expectations remain high, although reached a historic low of 9.5%, according to the Central Bank. While inflation expectations are “not anchored”, that is, remain very sensitive to any external factors. According to the Chairman of the Bank of Russia Elvira Nabiullina, high inflation expectations typical for the business.
“It is unlikely that inflation expectations will soon be at 4%. In many countries that have successfully targetirovat inflation, inflation expectations are often higher, because people perceive inflation in the number of reasons is higher than to measure indicators that are commonly used. Now they are too high of 9.5%, this high inflationary expectations, too big a gap with a purpose. And most important – when inflation expectations are high, they are very sensitive,” – said Nabiullina.
Good and healthy growth
According to the Central Bank for keeping inflation close to 4% requires that inflation expectations did not react to sharp, but temporary changes in prices on the most demand for the goods and services. CB expects that in the next six months, fluctuations in food prices – the most volatile element of the inflation basket, will remain a source of volatility in inflation. The dynamics of food prices, in turn, will depend on the quality and safety of the crop.
The Bank of Russia also announced that the inflation target close to or around 4% becomes constant, that is, the controller will no longer determine the horizon of achieving this goal or set a specific period. Nabiullina stressed that any deviation from the target level due to the rise or fall of food prices will not be sustainable and significantly to the overall inflation rate will not be affected. A significant factor for inflation is the rise in oil prices.
“The decisions that now makes the Central Bank to lower the interest rate is just a reaction to the fact that inflation fell below estimates. As far as I know, the Central Bank gave the forecast in the district is 3.7% inflation at the end of the year. We expect 3.2 percent. If we see that inflation is below expectations, the Central Bank, it is clear that the Central Bank it will react”, – said the Minister TASS. He added that the Ministry retains the forecast for the yield on inflation at 4% in 2018, but the trajectory of inflation in the coming months will be lower.
The head of the Ministry of industry and trade Denis Manturov called rate reduction to 8.5% of the significant and predicted positive effect on domestic enterprises.
“The lower the rate, the faster, more dynamic we can invest in enterprises in the modernization and creation of new projects. Therefore, this solution (reduction) half a percent is already a significant reduction. We expect positive reactions of our businesses. Of course, it’s a little bit of the inertial period, while banks will lower their lending rates, but the trend is very positive,” said Manturov.
The head of the Duma Committee on financial markets Anatoly Aksakov has expressed confidence that the decision of the Board of Directors of the Central Bank will support economic growth, however, the representatives of the business called the rate reduction is insufficient. In particular, the business Ombudsman Boris Titov stated that the reduction of the key rate lags behind macroeconomic conditions, although the trend is positive.
“Of course, lowering the interest rate lags far behind the macroeconomic conditions for it. We have always stated that the rate should follow inflation, today, inflation is already less than 4%. Nevertheless the rate just half a percentage point reduced,” – said Titov.
“It is certainly a step in the right direction, but too slow,” he said.