The Board of Directors of the Central Bank lowered its key rate by 0.5 percentage points, in line with market expectations. His decision regulator explained by slower inflation and lower inflation expectations while preserving the fragile economic activity.” “The reduction of inflation, in particular, was due to the dynamics of the ruble in conditions more favorable than previously expected, the foreign economic situation”, — said the Central Bank reasons for the decline in prices.
The regulator considers that the rate decrease to 10% is sufficient to create the necessary conditions for the further reduction of inflation. Therefore, as noted in the release of the Bank of Russia, further reduction of the key rate may occur in the first half of 2017.
The Bank of Russia for the first time gave a clear signal to the market on further actions on the key rate, said after a meeting of the Council, the head of the Central Bank Elvira Nabiullina. “Indeed, we first gave a clearer understanding of how we act in the coming months. (…) We are seeing some inflation risks that require a more restrained trajectory of inflation, so we made more predictable our actions for market participants,” she said. “We wanted including to again inform everyone that want to achieve the inflation target to 4%,” she said.
According to the forecast of the Bank of Russia, annual inflation will be around 4.5 percent in September 2017 and will further fall to the target level of 4% at the end of 2017.
TSB has actually promised that before the end of the year rate reductions will not” — said a senior economist of investment Bank “Renaissance capital” Oleg Kuzmin. According to the expert, in part, this may be related to the expected surplus of ruble liquidity, which in itself is at the end of the year will lead to some reduction in monetary conditions without the Central Bank will change rates. “If oil prices remain closer to current levels, the Central Bank will continue lowering rates in the first quarter of 2017 and the end of the year will drop it to 8%,” — said Kuzmin.
“In August, the slowdown in inflation and expectations of citizens, according to the latest survey of the Central Bank decreased considerably,” recalls managing research and analysis debt markets PSB Alexander Polyutov. In September, Rosstat noted a zero rate of inflation. Consumer prices in Russia do not grow for the third week in a row, and in early August recorded a decline. Starting in 2016, to September 12, prices increased by 3.9%. “Lower inflation also contributes to the replacement of indexation of pensions, lump sum payments,” he added Polutov.
“Information that the rate will not change until the end of the year, enough to eliminate the uncertainty of the next few months. The markets will argue and discuss whether it’s right or wrong, but CB, despite the good dynamics of inflation and the problems in the economy very severely intends to achieve the inflation target,” says senior economist for Russia and CIS Dmitry Field of ING.
“For investors in Russian securities, the Central Bank gave a good signal as indicated that rate until the end of the year will not decrease, this means that there is still an opportunity to purchase bonds with high profitability”, — wrote in his comments leading specialist business BROKER Eugene Korukhin. According to the analyst of Raiffeisenbank Denis Breaking until the market believes the regulator expecting higher inflation. “Yield seven-year government bonds remains at the level of 8.5% per annum, which roughly corresponds to annual inflation of 5.3%,” he says.
The Central Bank also noted unstable economic growth in 2016, first of all, according to the Central Bank, due to structural problems. In the end, the regulator explained its forecast for economic growth in 2017, suggesting that “in 2017, the GDP growth will be low — less than 1%”. “This forecast assumes conservative assumptions of a low rate of growth in the world economy, the average annual oil price of around USD 40 per barrel and the preservation of the structural constraints of the Russian economy development”, — stated in the review of the Central Bank. Earlier, the Bank of Russia expected growth of GDP in 2017 to 1.4%.
“Our economy shows signs of recovery: stopped falling real incomes, growing demand. To support this recovery required a reduction in interest rates, the level of which is largely determined by the key rate”, — said head of marketing strategy and research at VTB24 Dmitry Lepetikov.
However, the Bank does not link the decline in interest rates and economic activity. “The potential for reducing nominal interest rates is limited, and the moderately tight monetary conditions will persist in the economy for quite a long time,” warns the regulator.
“Such actions are very much move the level of responsibility: emphasize responsibility for the situation in the economy the value of money and the actions of the Central Bank, and structural issues that are the competence of the government. From the point of view of the budget is the major factor, which would remove much of the macroeconomic, financial and inflation risks, including after we receive the final budget for three years and an understanding of how to develop budget policy,” says Field.
In August, the Bank of Russia noted that while the recovery of the Russian economy in question. The July industrial production data was slightly worse than expected, the Bank of Russia (in the second quarter of 2016, the GDP decreased by 0.6%), and the fall in retail trade turnover in July amounted to 5%, follows from the review of “Economics: facts, ratings, comments. Total for the second quarter of 2016, according to the regulator, the fall in retail trade was 5.6% compared to the same period in 2015.
The next meeting of the Board of Directors of the Bank of Russia, which will address the issue of the level of the key rate, scheduled for 28 October 2016.