{"id":152251,"date":"2019-07-26T11:45:02","date_gmt":"2019-07-26T15:45:02","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=152251"},"modified":"2019-07-26T10:04:28","modified_gmt":"2019-07-26T14:04:28","slug":"russia-cuts-rate-25-bps-and-says-further-easing-possible","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/07\/russia-cuts-rate-25-bps-and-says-further-easing-possible\/","title":{"rendered":"Russia cuts rate 25 bps and says further easing possible"},"content":{"rendered":"
July 26, 2019<\/div>
\r\n<\/div><\/div>

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

Russia’s central bank lowered its key interest rate by 25 basis points to 7.25 percent, as widely expected, and repeated its guidance from last month that further rate cuts are possible in as the bank moves toward a neutral monetary policy stance in the first half of 2020.
\nIt is Bank of Russia’s second rate cut this year following a similar cut rate in June, with the central bank saying inflation is continuing to slow while economic growth is lower than expected.
\n“Weak economic activity, along with temporary factors, limits inflation risks over the short-term horizon,” the central bank said, confirming it expects inflation to return to its target of 4.0 percent in early 2020.
\nEarlier this month Elvira Nabiullina, central bank governor, told Reuters the bank would like to complete its easing cycle by mid-2020 by trimming the rate in small steps after saying in June that one of two rate cuts were possible by the end of this year.
\nNabiullina estimates monetary policy will be neutral when the rate reaches a range of 6.0 to 7.0 percent.
\nRussia’s central bank embarked on an easing cycle in January 2015 as it slowly rolled back a sharp 750 basis point rate hike in December 2014 to protect the ruble, which plunged in the wake of a conflict with Ukraine.
\nBetween January 2015 and April 2018 the key interest rate was cut by a total of 9.75 percentage points as inflation began to ease and the ruble slowly firmed but the easing cycle came to a sharp halt when fresh sanctions by the United States over Russia’s meddling in the U.S. 2016 presidential election triggered a 10 percent plunge in the ruble and a 9 percent fall in Moscow stock market.
\nIn September and December, 2018 Russia’s central bank then raised its rate twice by a total of 50 basis points in proactive moves to curb inflation from a combination of higher import prices from the lower ruble and a rise in value-added-taxes to 20 percent on Jan. 1, 2019.
\nAfter steadily rising in the second half of last year, inflation in Russia peaked in March this year at 5.3 percent and eased further to 4.7 percent in June and was close to 4.6 percent as of July 22 as inflation continues to follow the bank’s expected path.
\nCore inflation also declined in June for the first time since March 2018 to 4.6 percent as consumer demand constrains inflation along with the rise in the ruble this year and lower vegetable prices.
\nWhile inflation expectations among businesses have declined, the central bank said households’ inflation expectations had not changed materially since April and remain elevated. However, it expects a continued decline in inflation to pave the way for lower expectations.
\n“Disinflationary risks exceed pro-inflationary risks over the short-term horizon,” the central bank said, pointing to weak domestic and external demand.
\nGrowth in Russia’s economy has been slower due to weak investment and a drop in exports and a rise in industrial output in the second quarter may not be steady, the bank said.
\nIn the first half of the year fiscal policy also constrained economic activity but the central bank expects government spending to rise in the second half, adding “the risk of a slowdown in global economic growth still looms,” in the event of a further tightening of trade restrictions.
\nRussia’s gross domestic product slowed to annual growth of 0.5 percent in the first quarter of this year from 2.7 percent in the fourth quarter of last year.
\nThe ruble has been steadily appreciating since September last year and was trading at 63.15 to the U.S. dollar today, up 10.3 percent this year and up 26 percent since record lows around 80 to the dollar in February 2016.
\n<\/a>
\nThe Bank of Russia issued the following press release:<\/p>\n

“On\u00a026 July 2019, the Bank of\u00a0Russia Board of\u00a0Directors decided to\u00a0cut\u00a0the key rate<\/a>\u00a0by\u00a025\u00a0bp to\u00a07.25% per annum. Inflation slowdown is\u00a0continuing. At\u00a0the same time, inflation expectations remain elevated. Russian economy\u2019s growth rate is\u00a0coming in\u00a0lower than the Bank of\u00a0Russia\u2019s expectations. Weak economic activity, along with temporary factors, limits inflation risks over the short-term horizon. According to\u00a0the Bank of\u00a0Russia\u2019s forecast, taking into account the pursued monetary policy, annual inflation will return to\u00a04% in\u00a0early 2020.\u00a0<\/i><\/div>\n
If\u00a0the situation develops in\u00a0line with the baseline forecast, the Bank of\u00a0Russia admits the possibility of\u00a0further key rate reduction at\u00a0one of\u00a0the upcoming Board of\u00a0Directors\u2019 meetings and a\u00a0transition to\u00a0neutral monetary policy in\u00a0the first half of\u00a02020. In\u00a0its key rate decision-making, the Bank of\u00a0Russia will take into account actual and expected inflation dynamics relative to\u00a0the target and economic developments over the forecast horizon, as\u00a0well as\u00a0risks posed by\u00a0domestic and external conditions and the reaction of\u00a0financial markets.<\/i><\/div>\n
Inflation dynamics.<\/b>\u00a0Inflation slowdown is\u00a0continuing. Annual consumer price growth rate declined to\u00a04.7% in\u00a0June (from 5.1% in\u00a0May 2019) and was close to\u00a04.6% according to\u00a0the estimates as\u00a0of\u00a022\u00a0July. June results show that annual core inflation declined for the first time since March 2018 and reached 4.6%. Seasonally adjusted monthly consumer price growth rate slowed down to\u00a00.1% in\u00a0June vs\u00a00.3-0.4%\u00a0in\u00a0February-May. According to\u00a0Bank of\u00a0Russia estimates, most monthly inflation indicators reflecting the most sustainable price movements are close to\u00a04% (annualised).<\/div>\n
Consumer demand trends constrain inflation. Temporary disinflationary factors also contributed to\u00a0slowing consumer price growth, including ruble appreciation since the beginning of\u00a0the year and the decline in\u00a0fruit and vegetable prices on\u00a0the back of\u00a0early new harvest arrival. Annual inflation dynamics were also influenced by\u00a0base effects.<\/div>\n
In\u00a0June and July, business price expectations continued to\u00a0decline. Households\u2019 inflation expectations have not materially changed since April and remain elevated. Inflation slowdown paves the way for a\u00a0future decline in\u00a0inflation expectations.<\/div>\n
According to\u00a0the Bank of\u00a0Russia\u2019s forecast, taking into account the pursued monetary policy, annual inflation will return to\u00a04% in\u00a0early 2020.<\/div>\n
Monetary conditions.<\/b>\u00a0Monetary conditions continued to\u00a0ease since the last Board meeting. Among other things, this was driven by\u00a0the change in\u00a0expectations of\u00a0financial market participants with regard to\u00a0the Bank of\u00a0Russia\u2019s key rate path and the downward revision of\u00a0expected interest rate paths in\u00a0the\u00a0US and the euro area. OFZ yields and deposit interest rates continued to\u00a0decline. The Bank of\u00a0Russia\u2019s decisions to\u00a0cut the key rate and the decline in\u00a0OFZ yields observed since the beginning of\u00a0this year create conditions for the decrease in\u00a0deposit and lending rates in\u00a0the future.<\/div>\n
In\u00a0June, real sector lending continued to\u00a0grow on\u00a0the back of\u00a0eased monetary conditions. Annual growth rate of\u00a0loans to\u00a0non-financial organisations reached the maximum level since 2015 while the growth rate of\u00a0household loans stabilised after a\u00a0tangible increase in\u00a0the previous months.<\/div>\n
Economic activity.\u00a0<\/b>Russian economy\u2019s growth rate since the beginning of\u00a0the year has been lower than the Bank of\u00a0Russia\u2019s expectations. This was caused by\u00a0weak investment activity dynamics and a\u00a0significant drop in\u00a0annual export growth rates, including on\u00a0the back of\u00a0weaker external demand. The second quarter saw an\u00a0increase in\u00a0annual industrial production growth, which may not be\u00a0steady. Retail trade turnover growth continued to\u00a0decline YoY amid falling real disposable household incomes. Unemployment remains at\u00a0the historic lows. However, given the contracting number of\u00a0employees and the labour force, it\u00a0does not create any additional inflationary pressure.<\/div>\n
In\u00a0the first half of\u00a0the year, fiscal policy had additional constraining effect on\u00a0the economic activity, which is\u00a0in\u00a0part related to\u00a0the shift of\u00a0implementation schedule of\u00a0a\u00a0number of\u00a0national projects planned by\u00a0the Government. Since the second half of\u00a02019, government spending, including investment expenditures, is\u00a0expected to\u00a0rise.<\/div>\n
Inflation risks.<\/b>\u00a0Disinflationary risks exceed pro-inflationary risks over the short-term horizon. This is\u00a0primarily related to\u00a0the weak dynamics of\u00a0domestic and external demand.<\/div>\n
That said, significant risks are posed by\u00a0elevated and unanchored inflation expectations. The risk of\u00a0a\u00a0slowdown in\u00a0global economic growth still looms caused, among other things, by\u00a0the further tightening of\u00a0international trade restrictions. 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 volatility of\u00a0global oil prices. However, the revision of\u00a0interest rate paths in\u00a0the\u00a0US and the euro area in\u00a0June and July reduces the risks of\u00a0considerable capital outflows from emerging markets.<\/div>\n
Fiscal policy may cause a\u00a0meaningful impact on\u00a0inflation dynamics over both the short- and medium-term horizons. The catch-up growth of\u00a0budget spending in\u00a0the second half of\u00a0the current year may have a\u00a0pro-inflationary effect in\u00a0late 2019\u00a0\u2014 early 2020. Moving\u00a0on, potential decisions on\u00a0the use of\u00a0the liquid part of\u00a0the National Wealth Fund in\u00a0excess of\u00a0the threshold level set at\u00a07% of\u00a0GDP may exert upward pressure on\u00a0inflation.<\/div>\n
The Bank of\u00a0Russia leaves mostly unchanged its estimates of\u00a0risks associated with wage movements, prices of\u00a0individual food products, and possible changes in\u00a0consumer behaviour. These risks remain moderate.<\/div>\n
If\u00a0the situation develops in\u00a0line with the baseline forecast, the Bank of\u00a0Russia admits the possibility of\u00a0further key rate reduction at\u00a0one of\u00a0the upcoming Board of\u00a0Directors\u2019 meetings and a\u00a0transition to\u00a0neutral monetary policy in\u00a0the first half of\u00a02020. In\u00a0its key rate decision-making, the Bank of\u00a0Russia will take into account actual and expected inflation dynamics relative to\u00a0the target and economic developments over the forecast horizon, as\u00a0well as\u00a0risks posed by\u00a0domestic and external conditions and the reaction of\u00a0financial markets.<\/div>\n
\n
The Bank of\u00a0Russia Board of\u00a0Directors will hold its next rate review meeting on\u00a06\u00a0September 2019<\/a>. The press release on\u00a0the Bank of\u00a0Russia Board decision and the medium-term forecast is\u00a0to\u00a0be\u00a0published at\u00a013:30 Moscow time.”<\/div>\n
<\/div>\n

\u00a0 \u00a0 <\/span>\u00a0www.CentralBankNews.info<\/a><\/span><\/p>\n

<\/div>\n<\/div>\n

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

By CentralBankNews.info Russia’s central bank lowered its key interest rate by 25 basis points to 7.25 percent, as widely expected, and repeated its guidance from last month that further rate cuts are possible in as the bank moves toward a neutral monetary policy stance in the first half of 2020. It is Bank of Russia’s […]<\/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-152251","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/152251","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=152251"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/152251\/revisions"}],"predecessor-version":[{"id":152253,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/152251\/revisions\/152253"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=152251"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=152251"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=152251"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}