{"id":141386,"date":"2019-02-08T10:30:21","date_gmt":"2019-02-08T15:30:21","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=141386"},"modified":"2022-09-20T16:57:05","modified_gmt":"2022-09-20T16:57:05","slug":"russia-maintains-rate-but-warns-of-rising-inflation-in-h1","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/02\/russia-maintains-rate-but-warns-of-rising-inflation-in-h1\/","title":{"rendered":"Russia maintains rate but warns of rising inflation in H1"},"content":{"rendered":"
February 8, 2019<\/div>
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By CentralBankNews.info<\/u><\/a><\/p>\n

Russia’s central bank kept its key interest rate unchanged at 7.75 percent, as largely expected, but warned inflation is likely to rise further in coming months and future policy decisions will hinge on whether last year’s two rate hikes were sufficient to bring inflation back to the target in 2020.
\nIn December the Bank of Russia raised its rate by 25 basis points in what it described as a proactive move to limit elevated risks to inflation following a similar-sized hike in September.
\nThese two rate hikes came after the central bank had been on a steady path of policy easing from January 2015 to April 2018 during which the key rate was cut by a total of 9.75 percentage points.
\nBut a combination of higher import prices from ruble depreciation, higher food prices, and a rise in consumer prices ahead of the January 1 rise in value-added-taxes (VAT) to 20 percent from 18 percent pushed up inflation steadily in the second half of last year to 5 percent in December.
\nInflation remained unchanged at 5.0 percent in January, the central bank said, adding the contribution of the VAT rise to inflation last month was moderate and the full impact of the VAT increase can not be fully captured until April.
\n“The balance of risks remains skewed towards pro-inflationary risks, especially over a short-term horizon, driven by the VAT increase and price movements in individual food products,” the central bank said, adding there is also uncertainty over external conditions and their impact on financial assets while there is a high risks of the supply of oil exceeding demand this year.
\nThe central bank expects inflation to temporarily accelerate and peak in the first half of this year before easing to 5.0 – 5.5 percent by the end of this year and then return to the target of 4.0 percent in the first half of 2020 as the effects of the ruble’s weakening and the VAT rise disappear.
\nThe first estimates of Russia’s economic growth last year show 2.3 percent, above the central bank’s estimates of 1.5 – 2.0 percent, but it added the growth in economic activity had slowed in recent months and there was a decline in the growth rate industrial production, construction, real wages and retail sales in December.
\nHowever, the central bank maintained its forecast for 2019 growth of 1.2 – 1.7 percent as government spending will help boost investment this year, offsetting some of the constraining impact from the VAT rise.
\nRussia’s ruble, which fell in the first half of 2018 and then bounced back following the central bank’s September rate hike, firmed in response to the central bank’s policy decision today and was trading at 65.8 to the U.S. dollar to be up 5.8 percent this year.
\n<\/a><\/p>\n

The Bank of Russia released the following press release:<\/p>\n

 <\/p>\n

“The Bank of Russia keeps the key rate at 7.75% per annum<\/h3>\n
On\u00a08 February 2019, the Bank of\u00a0Russia Board of\u00a0Directors decided to\u00a0keep\u00a0the key rate<\/a>\u00a0at\u00a07.75% per annum. In\u00a0January 2019, annual inflation held at\u00a0the lower bound of\u00a0the Bank of\u00a0Russia expectations. Inflation expectations of\u00a0households and businesses increased somewhat. The contribution of\u00a0the VAT increase to\u00a0annual consumer price growth in\u00a0January was moderate. The effect of\u00a0the VAT increase on\u00a0inflation can be\u00a0fully assessed no\u00a0sooner than this April. There persists uncertainty over future external conditions and certain food price dynamics. The balance of\u00a0risks remains skewed towards pro-inflationary risks, especially over a\u00a0short-term horizon. Given the decision taken, the Bank of\u00a0Russia forecasts annual inflation to\u00a0range between 5.0 and 5.5% by\u00a0the end of\u00a02019 and return to\u00a04% in\u00a0the first half of\u00a02020.<\/i><\/div>\n
In\u00a0its key rate decision-making, the Bank of\u00a0Russia will determine if\u00a0the increases of\u00a0the key rate in\u00a0September and December 2018 were sufficient to\u00a0bring annual inflation back to\u00a0the target in\u00a02020, taking into account inflation and economic performance against the forecast, as\u00a0well as\u00a0the risks associated with external conditions and financial markets\u2019 response to\u00a0them.<\/i><\/div>\n
Inflation dynamics.<\/b>\u00a0In\u00a0January 2019, annual inflation held at\u00a0the lower bound of\u00a0the Bank of\u00a0Russia expectations.\u00a0<\/i>Annual consumer price growth rose to\u00a05.0% in\u00a0January (vs\u00a04.3% in\u00a0December 2018). The contribution of\u00a0the VAT increase to\u00a0annual consumer price growth in\u00a0January was moderate. The effect of\u00a0the VAT increase on\u00a0inflation can be\u00a0fully captured no\u00a0sooner than this April. Faster growth of\u00a0food prices to\u00a05.5% (vs\u00a04.7% in\u00a0December 2018) played a\u00a0significant role in\u00a0the inflation rise in\u00a0January. The acceleration of\u00a0food inflation is\u00a0substantively attributable to\u00a0the recovery after its considerable drop in\u00a0the second half of\u00a02017 and the first half of\u00a02018. Furthermore, prices are completing their adjustment to\u00a0the ruble\u2019s weakening of\u00a0the second half of\u00a02018. Annual inflation of\u00a0prices of\u00a0non-food goods and services was below that of\u00a0food prices during the last 12\u00a0months.<\/div>\n
In\u00a0January, price expectations of\u00a0businesses increased on\u00a0the back of\u00a0the earlier weakening of\u00a0the ruble and the VAT increase. Household inflation expectations rose only slightly.<\/div>\n
According to\u00a0the Bank of\u00a0Russia forecast, the VAT increase and the 2018 weakening of\u00a0the ruble will temporarily accelerate annual inflation, which will peak in\u00a0the first half of\u00a02019 and run at\u00a05.0-5.5%\u00a0by\u00a0the end of\u00a02019. Quarterly year-on-year consumer price growth is\u00a0set to\u00a0decelerate to\u00a04% as\u00a0early as\u00a0the second half of\u00a02019. Annual inflation will return to\u00a04% in\u00a0the first half of\u00a02020 when the effects of\u00a0the ruble\u2019s weakening and the VAT rise peter out.<\/div>\n
Monetary conditions.<\/b>\u00a0Monetary conditions have seen no\u00a0significant changes since the last Board meeting. Interest rates in\u00a0individual segments of\u00a0the domestic financial market have showed mixed trends. OFZ yields have declined as\u00a0external financial markets regained a\u00a0stable footing. Interest rates in\u00a0the deposit and credit market have risen slightly. Sustained positive real interest rates are set to\u00a0support the attractiveness of\u00a0bank deposits and bonds and balanced growth in\u00a0consumption.<\/div>\n
Economic activity.<\/b>\u00a0Rosstat\u2019s flash estimate shows that 2018\u00a0GDP growth totalled 2.3%, which exceeds the Bank of\u00a0Russia\u2019s forecast of\u00a01.5-2%.\u00a0However, recent months have seen slower growth in\u00a0economic activity. December recorded a\u00a0decline of\u00a0growth rates in\u00a0industrial production, construction volumes, real wages and retail sales. The Bank of\u00a0Russia maintains its 2019\u00a0GDP growth forecast in\u00a0the range of\u00a01.2-1.7%.\u00a0The VAT increase might have a\u00a0slight constraining effect on\u00a0business activity, mostly early in\u00a0the year. The newly received budgetary funds will be\u00a0used to\u00a0raise government spending including investment as\u00a0early as\u00a02019. Subsequent years might see higher economic growth rates as\u00a0the planned structural measures are implemented.<\/div>\n
Inflation risks.<\/b>\u00a0The balance of\u00a0risks remains skewed towards pro-inflationary risks, especially over a\u00a0short-term horizon, driven by\u00a0the VAT increase and price movements in\u00a0individual food products. Uncertainty remains over future external conditions and their impact on\u00a0financial asset prices. Despite the oil price growth in\u00a0January 2019, the risks of\u00a0supply exceeding demand in\u00a0the 2019 oil market remain high.<\/div>\n
The revisions of\u00a0the expected paths of\u00a0monetary policy tightening by\u00a0the US\u00a0Federal Reserve and other central banks in\u00a0developed markets reduce the risks of\u00a0persistent capital outflows from emerging markets. At\u00a0the same time, geopolitical factors might lead to\u00a0strengthened volatility in\u00a0commodity and financial markets, affecting exchange rate and inflation expectations.<\/div>\n
The Bank of\u00a0Russia leaves mostly unchanged its assessment of\u00a0risks associated with wage movements, possible changes in\u00a0consumer behaviour and budget expenditures. These risks remain moderate.<\/div>\n
In\u00a0its key rate decision-making, the Bank of\u00a0Russia will determine if\u00a0the increases of\u00a0the key rate in\u00a0September and December 2018 were sufficient to\u00a0bring annual inflation back to\u00a0the target in\u00a02020, taking into account inflation and economic performance against the forecast, as\u00a0well as\u00a0the risks associated with external conditions and financial markets\u2019 response to\u00a0them.<\/div>\n
The Bank of\u00a0Russia Board of\u00a0Directors will hold its next rate review meeting on\u00a022\u00a0March 2019<\/a>. The press release on\u00a0the Bank of\u00a0Russia Board decision is\u00a0to\u00a0be\u00a0published at\u00a013:30 Moscow time.”<\/div>\n
\u00a0 \u00a0 \u00a0<\/span>www.CentralBankNews.info<\/span><\/a><\/div>\n
<\/div>\n

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By CentralBankNews.info Russia’s central bank kept its key interest rate unchanged at 7.75 percent, as largely expected, but warned inflation is likely to rise further in coming months and future policy decisions will hinge on whether last year’s two rate hikes were sufficient to bring inflation back to the target in 2020. In December the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-141386","post","type-post","status-publish","format-standard","hentry","category-investment-news","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/141386","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=141386"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/141386\/revisions"}],"predecessor-version":[{"id":174378,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/141386\/revisions\/174378"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=141386"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=141386"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=141386"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}