{"id":146521,"date":"2019-04-26T11:00:25","date_gmt":"2019-04-26T15:00:25","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=146521"},"modified":"2019-04-26T10:40:03","modified_gmt":"2019-04-26T14:40:03","slug":"russia-holds-rate-but-sees-possible-cuts-in-q2-or-q3","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/04\/russia-holds-rate-but-sees-possible-cuts-in-q2-or-q3\/","title":{"rendered":"Russia holds rate but sees possible cuts in Q2 or Q3"},"content":{"rendered":"
April 26, 2019<\/div>
\r\n<\/div><\/div>

By CentralBankNews.info<\/u><\/a><\/p>\n

Russia’s central bank left its key rate steady at 7.75 percent but said inflation was now subsiding after peaking in March and “if the situation develops in line with the baseline forecast, the Bank of Russia admits the possibility of turning to cutting the key rate in Q2-Q3 2019.”
\nThe Bank of Russia raised its rate twice last year in pre-emptive moves to limit inflation and today’s decision was largely expected following recent statements by Governor Elvira Nabiullina in March and on April 13.
\nToday the central bank said the rate hikes in September and December, which followed rate cuts in \u00a0February and March, “were sufficient to curb the effects of one-off pro inflationary factors” and confirmed its forecast for inflation to return to 4.0 percent in the first half of 2020.
\nFollowing the March meeting of the bank’s board of directors, Nabiullina said she had every reason to believe last year’s rate hikes were likely to bring inflation back to near the bank’s target in the first half of 2020.
\nHer confidence in the path of inflation was supported by the bank’s lowering of its forecast for inflation to reach 4.7-5.2 percent by the end of this year from a previous forecast of 5.0-5.5 percent.
\nEarlier this month in Washington D.C., Nabiullina then said she saw the probability of a rate cut this year and the rise in the rouble was helping curb price rises.
\nLast year’s rate hikes came in response to higher import prices from a fall in the ruble, higher food prices, and a rise in consumer prices ahead of an increase in value added tax to 20 percent from 18 percent at the start of this year.
\nAs a consequence, Russia’s inflation rate accelerated in the second half of 2018 from a year-low of 2.3 percent in May and rose steadily through March this year when it hit 5.3 percent.
\nBut the central bank said inflation had now passed the peak and decelerated to 5.1 percent as of April 22, slightly below its forecast, and the pass-through of the VAT hike to prices had largely materialized while consumer demand was still constraining inflation.
\nIn addition, the rise in the rouble since the start of this year and declining prices for motor fuel and certain food products would temporarily slow down consumer price growth, the bank said.
\nLast year the rouble fell in response to fresh sanctions by the U.S. April but began to bounce back in September following the central bank’s first rate hike. This year the ruble has continued to gain strength and has risen 7.7 percent so far to trade at 64.65 against the U.S. dollar today.
\nInflation expectations by households rose slightly after falling in March while expectations among businesses have continued to decline but remain at an elevated level, the bank added.
\nEconomic activity in Russia remains close to its potential but the hike in VAT slowed retail sales and business activity in the first quarter of this year and there is no upward pressure on prices from consumer demand and labour markets, the bank said, adding industrial production grew moderately \u00a0but below the fourth quarter of last year.
\nIn the fourth quarter of last year Russia’s gross domestic product grew 2.7 percent year-on-year and the central bank confirmed its forecast for 2019 growth of 1.2 to 1.7 percent.
\nIn 2018 Russia’s economy grew 2.3 percent but this was above forecasts by both the central bank and the economy ministry and followed an sharp upward revision of construction growth in the first 11 months of the year by Rosstat, the federal statistics service.
\nThe next monetary policy meeting by the bank’s board is scheduled for June 14.
\n<\/a><\/p>\n

The Bank of Russia issued the following statement:<\/p>\n

\n
“On\u00a026 April 2019, the Bank of\u00a0Russia Board of\u00a0Directors decided to\u00a0keep\u00a0the key rate<\/a>\u00a0at\u00a07.75% per annum. Annual inflation passed the local peak in\u00a0March and started to\u00a0subside in\u00a0April. Consumer prices current growth rates track somewhat below the Bank of\u00a0Russia forecast. In\u00a0April, inflation expectations of\u00a0households rose slightly after a\u00a0tangible drop in\u00a0March. Business price expectations continued to\u00a0decline but remain at\u00a0an\u00a0elevated level. Short-term proinflationary risks have abated. The Bank of\u00a0Russia\u2019s decisions to\u00a0raise the key rate made in\u00a0September and December 2018 were sufficient to\u00a0curb the effects of\u00a0one-off proinflationary factors. According to\u00a0the Bank of\u00a0Russia\u2019s forecast, annual inflation will return to\u00a04% in\u00a0the first half of\u00a02020.\u00a0<\/i><\/div>\n
In\u00a0its key rate decision-making, the Bank of\u00a0Russia will take into account inflation and economic dynamics against the forecast, as\u00a0well as\u00a0risks posed by\u00a0external conditions and the reaction of\u00a0financial markets. If\u00a0the situation develops in\u00a0line with the baseline forecast, the Bank of\u00a0Russia admits the possibility of\u00a0turning to\u00a0cutting the key rate in\u00a0Q2-Q3 2019.<\/i><\/div>\n
Inflation dynamics.<\/b>\u00a0In\u00a0March, annual inflation passed the local peak. The annual consumer price growth rate increased to\u00a05.3% in\u00a0March (from 5.2% in\u00a0February 2019). In\u00a0April, annual inflation started to\u00a0slow down and declined to\u00a05.1%, according to\u00a0the estimate as\u00a0of\u00a022\u00a0April. Consumer prices current growth rates tend to\u00a0be\u00a0somewhat below the Bank of\u00a0Russia\u2019s forecast. The VAT increase pass-through to\u00a0prices has largely materialised.<\/div>\n
The Bank of\u00a0Russia\u2019s pre-emptive key rate hikes in\u00a0September and December 2018 helped return annualised monthly consumer price growth rates to\u00a0levels close to\u00a04%. Consumer demand trends constrain inflation. Also, temporary disinflationary factors contributed to\u00a0slowing consumer price growth, among those ruble appreciation since the beginning of\u00a0the year, and declining prices for principal types of\u00a0motor fuel and certain food products in\u00a0March-April compared to\u00a0February readings.<\/div>\n
In\u00a0April, inflation expectations of\u00a0households rose slightly after a\u00a0tangible drop in\u00a0March. Business price expectations continued to\u00a0decline but remain at\u00a0an\u00a0elevated level.<\/div>\n
According to\u00a0the Bank of\u00a0Russia\u2019s forecast, annual inflation will return to\u00a04% in\u00a0the first half of\u00a02020.<\/div>\n
Monetary conditions.<\/b>\u00a0Monetary conditions have seen no\u00a0significant changes since the last Board meeting. OFZ yields, as\u00a0well as\u00a0deposit and lending rates held close to\u00a0their March-end readings. That said, the year-to-date decline in\u00a0OFZ yields creates conditions for the decline of\u00a0deposit and lending rates in\u00a0the future.<\/div>\n
Economic activity.<\/b>\u00a0Rosstat\u2019s revision of\u00a02014-2018 GDP\u00a0data has not changed the Bank of\u00a0Russia\u2019s view of\u00a0the current state of\u00a0the economy\u00a0\u2014 it\u00a0is\u00a0close to\u00a0the potential. Current consumer demand trends and labour market conditions create no\u00a0excessive inflationary pressure. In\u00a0the first quarter, industrial production grew moderately year on\u00a0year and somewhat below the reading of\u00a02018 Q4. Investment activity remains muted. Annual retail sales growth declined in\u00a0the first quarter as\u00a0a\u00a0result of\u00a0the VAT increase and the slowdown in\u00a0wage growth.<\/div>\n
The Bank of\u00a0Russia expects GDP to\u00a0grow by\u00a01.2-1.7%\u00a0in\u00a02019. The VAT hike slightly constrained business activity. The incremental budget revenues will be\u00a0used to\u00a0raise government spending, including investment, as\u00a0early as\u00a02019. Subsequent years might see higher economic growth rates as\u00a0national projects are implemented.<\/div>\n
Inflation risks.<\/b>\u00a0Short-term proinflationary risks have abated. With respect to\u00a0internal conditions, the secondary effects of\u00a0the VAT increase are seen as\u00a0immaterial and accelerated price growth in\u00a0certain food products became less of\u00a0a\u00a0risk.<\/div>\n
That said, significant risks are posed by\u00a0elevated and unanchored inflation expectations, as\u00a0well as\u00a0by\u00a0external factors. In\u00a0particular, the risk of\u00a0a\u00a0slowdown in\u00a0global economic growth still looms. Geopolitical factors might lead to\u00a0strengthened volatility in\u00a0global commodity and financial markets, affecting exchange rate and inflation expectations. Supply-side factors in\u00a0the oil market may amplify the volatility of\u00a0global oil prices. At\u00a0the same time, the revision of\u00a0the interest rate paths by\u00a0the US\u00a0Fed and other central banks in\u00a0advanced economies in\u00a0the first quarter constrains the risks of\u00a0persistent capital outflows from emerging markets.<\/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 take into account inflation and economic dynamics against the forecast, as\u00a0well as\u00a0risks posed by\u00a0external conditions and the reaction of\u00a0financial markets. If\u00a0the situation develops in\u00a0line with the baseline forecast, the Bank of\u00a0Russia admits the possibility of\u00a0turning to\u00a0cutting the key rate in\u00a0Q2-Q3 2019.<\/div>\n
The Bank of\u00a0Russia Board of\u00a0Directors will hold its next rate review meeting on\u00a014\u00a0June 2019<\/a>. The Board decision press release and the medium-term forecast are to\u00a0be\u00a0published at\u00a013:30 Moscow time.”<\/div>\n
\u00a0 \u00a0 www.CentralBankNews.info<\/a><\/div>\n<\/div>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By CentralBankNews.info Russia’s central bank left its key rate steady at 7.75 percent but said inflation was now subsiding after peaking in March and “if the situation develops in line with the baseline forecast, the Bank of Russia admits the possibility of turning to cutting the key rate in Q2-Q3 2019.” The Bank of Russia […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-146521","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/146521","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\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=146521"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/146521\/revisions"}],"predecessor-version":[{"id":146523,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/146521\/revisions\/146523"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=146521"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=146521"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=146521"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}