The Bank of Russia kept its key rate at 7.25%


TASS, April 27. The Bank of Russia on 27 April kept its key rate at 7.25%, is spoken in the message of Bank following the results of the Board of Directors.

At the previous Board of Directors on March 23, the regulator lowered the rate by 25 b. p. (0.25 p. p.) from the previous level of 7.5% amid record low inflation.

“The regulator notes that annual inflation remains at a low level. When this occurred in April, the weakening of the ruble amid geopolitical tensions will be a factor in more rapid approximation of the growth rate of consumer prices to 4%, but does not create a risk of exceeding the inflation target”, – stated in the release.

A new decision on the rate was taken in rapidly changing conditions on 6 April, the US imposed against Russia new sanctions, bringing down Russian stocks and weakening the ruble. Part of the losses the markets were compensated, however, analysts don’t expect the Bank of Russia will go to further easing after the April shock, the consequences of which are yet to be assessed.

The reduction potential of the reduction of the key rate

The potential reduction in the key rate of the Central Bank decreased slightly and the estimate of the neutral rate has shifted closer to the upper bound of the range of 6-7%, is spoken in the message of the Central Bank of the Russian Federation on the results of the Board of Directors.

“According to Bank of Russia estimates, the potential reduction in the key rate for the formation of neutral monetary conditions decreased slightly. In terms of a certain increase in the country risk premium and interest rates in developed markets, the estimation of the neutral interest rate is moved closer to the upper boundary of the range of values of 6-7%”, – stated in the message controller.

Thus according to the Central Bank, the transition to a neutral monetary policy in Russia will be completed in 2018.

Inflationary risks

The Central Bank said inflationary risks from external and internal factors, including geopolitical, stated in a press release.

“The Bank of Russia said inflationary risks from a number of external and internal factors. First, geopolitical factors and accelerated growth of yields in developed markets can lead to bouts of volatility in the financial markets and to influence the exchange rate and inflation expectations. In addition, there is no certainty as to the parameters of the tax and budget decisions for their impact on the dynamics of inflation”, – said in a release.

The weakening of the ruble and inflation expectations

The Central Bank said the continuing uncertainty regarding the impact of the weakening of the ruble in April, inflation expectations, said the release of the regulator.

“This happened in April, the weakening of the ruble amid geopolitical tensions will be a factor in more rapid approximation of the growth rate of consumer prices to 4%, but does not create a risk of exceeding the inflation target. However, uncertainty remains regarding the impact of the events on inflation expectations”, – said in a release the Central Bank.

The inflation forecast for 2018 and 2019

By the end of 2018, inflation is projected at 3-4% and will be close to 4% in 2019, according to a press release from the Central Bank of the Russian Federation following the meeting of the Board of Directors.

According to the Bank of Russia, which occurred the weakening of the ruble will lead to a more rapid approach of inflation to 4%, but will not create a risk of exceeding this level in the absence of significant changes in external conditions. By 2018, the growth rate of consumer prices is projected in the range of 3-4% and will be close to 4% in 2019.

Overall inflation remains at a low level, emphasizes the Central Bank. “In March, the rate of growth of consumer prices was 2.4% in April, it is estimated in the range of 2.3 to 2.5 percent”, – stated in a press release.

Risk assessment of volatility in oil prices and food

The Bank of Russia has left without changes the assessment of the risks associated with volatile food and oil prices, and the salaries of the Russians, stated in the message.

“Assessment by the Bank of Russia the risks associated with volatile food and oil prices, the dynamics of wages, possible changes in consumer behavior have not changed,” the report says.

Previously, the regulator had said that he would pay special attention to the situation in the labour market, including to assess the impact of the dynamics of income and wages on consumer behavior and inflation.

Geopolitical factors and the volatility of financah

The Central Bank predicts that geopolitical factors and accelerated growth of yields in developed markets can lead to bouts of volatility in financial markets.

“The Bank of Russia said inflationary risks from a number of external and internal factors. First, geopolitical factors and accelerated growth of yields in developed markets can lead to bouts of volatility in the financial markets and to influence the exchange rate and inflation expectations”, – said in a release the Central Bank.

In addition, the regulator noted that there was no certainty as to the parameters of fiscal decisions to assess their impact on the dynamics of inflation.

GDP growth

According to forecasts of the regulator, the growth of GDP in 2018 in the range of 1.5-2%, according to the release.

“GDP growth is estimated at 1.3-1.5% in the first quarter, and by the end of 2018 is projected in the range of 1.5-2%, which corresponds to a potential growth rate of the economy”, – said the Central Bank.

This March continued the growth of the economy, including industry, increased production capacity. “Business activity continues to grow, and almost do not render the disinflationary influence on the dynamics of consumer prices, which creates the conditions for the return of inflation to 4%,” says the regulator.

Source