{"id":158423,"date":"2019-10-25T13:01:40","date_gmt":"2019-10-25T17:01:40","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=158423"},"modified":"2019-10-25T12:29:20","modified_gmt":"2019-10-25T16:29:20","slug":"russia-cuts-rate-50-bps-and-will-consider-further-cuts","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/10\/russia-cuts-rate-50-bps-and-will-consider-further-cuts\/","title":{"rendered":"Russia cuts rate 50 bps and will consider further cuts"},"content":{"rendered":"
October 25, 2019<\/div>
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By CentralBankNews.info<\/u><\/a><\/p>\n

Russia’s central bank lowered its key interest rate for the fourth time this year due to a faster-than-expected decline in inflation and said it would consider further rate cuts in coming months if inflation continues to fall.<\/p>\n

The Bank of Russia cut its key interest rate by 50 basis points to 6.50 percent and has now cut it by a total of 125 points this year following cuts in June, July, September and today.<\/p>\n

“The Russian economy’s growth rate still remains subdued,” the central bank said, adding there are still risks of a substantial global slowdown, inflation expectations are declining and disinflationary risks exceed pro-inflationary risks.<\/p>\n

The central bank normally cuts its rate in 25 basis points increments, but last week Governor Elvira Nabiullina said slowing economic growth and faster-than-expected drop in inflation would allow the central bank to “act more decisively” in comparison with past rate cuts that were moderate.<\/p>\n

Russia’s inflation rate decelerated for the 6th consecutive month to 4.0 percent in September and is estimated to have declined further toward 3.8 percent as of October 21, the central bank said, cutting its forecast for inflation to average 3.2 to 3.7 percent this year from an earlier forecast of 4.0 to 4.5 percent.<\/p>

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Inflation is expected to decline to slightly below 3.0 percent in the first quarter of 2020 as a rise in Value-Added-Tax drops out of the comparison and average between 3.5 and 4.0 percent next year, settling around the bank’s 4.0 percent target further on.<\/p>\n

“If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at one of the upcoming Board of Directors’ meetings,” the bank said.<\/p>\n

Economic growth in Russia remains subdued with annual growth of 0.9 percent in the second quarter of this year and the central bank is maintaining its forecast for 2019 growth of 0.8 to 1.3 percent.<\/p>\n

The forecast for coming years was also unchanged, with growth seen gradually rising to between 2.0 and 3.0 percent in 2022 based on the expectation that structural reforms will be carried out.<\/p>\n

“However, the global economic slowdown expected over the forecast horizon will continue to exert a constraining impact on growth of the Russian economy,” the bank said.<\/p>\n

The ruble, which has strengthened this year and thus helped slow inflation, rose a further 0.3 percent to 63.8 per U.S. dollar to be 9 percent higher than at the start of this year.
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The Bank of Russia issued the following press release:<\/p>\n

“On\u00a025 October 2019, the Bank of\u00a0Russia Board of\u00a0Directors decided to\u00a0cut\u00a0the key rate<\/a>\u00a0by\u00a050\u00a0bp to\u00a06.50% per annum. Inflation slowdown is\u00a0overshooting the forecast. Inflation expectations continue to\u00a0decrease. The Russian economy\u2019s growth rate still remains subdued. Risks of\u00a0a\u00a0substantial global economic slowdown persist. Disinflationary risks exceed pro-inflationary risks over the short-term horizon. In\u00a0these circumstances, the Bank of\u00a0Russia has lowered its annual inflation forecast for 2019 from\u00a04.0\u20134.5%\u00a0to\u00a03.2\u20133.7%.\u00a0Given the monetary policy stance, annual inflation will come in\u00a0at\u00a03.5\u20134.0%\u00a0in\u00a02020 and will remain close to\u00a04% further\u00a0on.<\/i><\/div>\n
If\u00a0the situation develops in\u00a0line with the baseline forecast, the Bank of\u00a0Russia will consider the necessity of\u00a0further key rate reduction at\u00a0one of\u00a0the upcoming Board of\u00a0Directors\u2019 meetings. 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.\u00a0<\/i><\/div>\n
Inflation dynamics.<\/b>\u00a0Inflation slowdown is\u00a0overshooting the forecast. Annual consumer price growth rate declined to\u00a04.0% in\u00a0September (from 4.3% in\u00a0August 2019) and was close to\u00a03.8% according to\u00a0the estimate as\u00a0of\u00a021\u00a0October. September results show that annual core inflation also decreased to\u00a04.0% as\u00a0compared to\u00a04.3% in\u00a0August. According to\u00a0the Bank of\u00a0Russia\u2019s estimates, inflation indicators reflecting the most sustainable price movements are close to\u00a0or\u00a0below 4%.<\/div>\n
In\u00a0September\u2014October, disinflationary factors had a\u00a0more pronounced influence on\u00a0the slowdown of\u00a0price growth rates than it\u00a0had been estimated before. At\u00a0the same, time pro-inflationary risks related to\u00a0the external conditions did not materialise. Taking into account one-off factors amid a\u00a0good harvest and expanded supply in\u00a0individual food market segments, seasonally adjusted food price growth rates remained low. The ruble appreciation since the beginning of\u00a0the year alongside with inflation slowdown in\u00a0Russia\u2019s trading partners limits the price growth of\u00a0imports. In\u00a0addition, the impact of\u00a0subdued demand on\u00a0inflation is\u00a0becoming increasingly strong. Domestic demand dynamics is\u00a0also affected by\u00a0the persisting delay in\u00a0the financing of\u00a0budget expenditures, including the expenditures on\u00a0national projects, compared to\u00a0earlier announced plans.<\/div>\n
In\u00a0September\u2014October, households\u2019 inflation expectations continued to\u00a0decrease, while remaining elevated. Business price expectations slightly lowered. Annual inflation slowdown paves the way for a\u00a0future decline in\u00a0inflation expectations of\u00a0households and businesses.<\/div>\n
The Bank of\u00a0Russia has lowered its annual inflation forecast for 2019 from\u00a04.0\u20134.5%\u00a0to\u00a03.2\u20133.7%.\u00a0Meanwhile, annual inflation will be\u00a0slightly below\u00a03% in\u00a02020 Q1\u00a0when the effect of\u00a0the VAT rate hike is\u00a0factored out from the calculation of\u00a0annual inflation. Given the monetary policy stance, annual inflation will come in\u00a0at\u00a03.5\u20134%\u00a0in\u00a02020 and will remain close to\u00a04% further\u00a0on.<\/div>\n
Monetary conditions.<\/b>\u00a0Monetary conditions have 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. OFZ yields and deposit and lending rates continued to\u00a0decline. The Bank of\u00a0Russia\u2019s decisions to\u00a0cut the key rate and the decline in\u00a0OFZ yields create conditions for a\u00a0further reduction in\u00a0deposit and lending rates.<\/div>\n
Real sector lending continues to\u00a0grow on\u00a0the back of\u00a0eased monetary conditions. At\u00a0the same time, annual growth in\u00a0lending to\u00a0households has been slowing down since June after noticeable growth in\u00a02018\u00a0\u2014 early 2019.<\/div>\n
Economic activity.<\/b>\u00a0The Russian economy\u2019s growth rate still remains subdued. In\u00a0these circumstances, the Bank of\u00a0Russia keeps unchanged its 2019\u00a0GDP growth forecast in\u00a0the range of\u00a00.8\u20131.3%.\u00a0However, current data suggests that the growth of\u00a0the Russian economy might accelerate in\u00a02019\u00a0Q3, partially driven by\u00a0temporary factors.<\/div>\n
Economic activity continues to\u00a0be\u00a0constrained by\u00a0weakening external demand for Russian exports on\u00a0the back of\u00a0a\u00a0global economic slowdown as\u00a0well as\u00a0by\u00a0weak investment activity dynamics, including government investment expenditures. August-September saw continuing annual growth of\u00a0industrial production; however, leading indicators point to\u00a0worsening business sentiment in\u00a0the industrial sector, which is\u00a0mostly specific of\u00a0export orders. Growth in\u00a0real disposable household incomes has yet to\u00a0influence the dynamics of\u00a0retail trade turnover. The labour market creates no\u00a0additional inflationary pressure. The fact that unemployment remains near historic lows is\u00a0not driven by\u00a0expanding labour demand but rather by\u00a0a\u00a0simultaneously contracting number of\u00a0employees and the labour force.<\/div>\n
Since the beginning of\u00a02019, fiscal policy has had a\u00a0constraining effect on\u00a0economic activity. This is\u00a0in\u00a0part related to\u00a0a\u00a0slower than expected implementation of\u00a0national projects planned by\u00a0the Government. Going forward, the rise in\u00a0government expenditures, including investment ones, and their impact on\u00a0economic growth will be\u00a0more distributed over time.<\/div>\n
The Bank of\u00a0Russia has left the\u00a02019\u20132022 GDP\u00a0growth forecast unchanged. The GDP growth rate will gradually increase from\u00a00.8\u20131.3%\u00a0in\u00a02019 to\u00a02\u20133%\u00a0in\u00a02022. This will be\u00a0possible should the Government\u2019s measures for overcoming structural constraints, including the implementation of\u00a0national projects, be\u00a0realised. However, the global economic slowdown expected over the forecast horizon will continue to\u00a0exert a\u00a0constraining impact on\u00a0growth of\u00a0the Russian economy.<\/div>\n
Inflation risks.\u00a0<\/b>Disinflationary risks exceed pro-inflationary risks over the short-term horizon. This is\u00a0primarily related to\u00a0the weak dynamics of\u00a0domestic and external demand. Disinflationary risks associated with movements in\u00a0prices of\u00a0certain food products persist, including on\u00a0the back of\u00a0a\u00a0rise in\u00a0supply of\u00a0farm produce. Pro-inflationary risks posed by\u00a0budget expenditures growth in\u00a0the second half of\u00a02019\u00a0\u2014 early 2020 hold low because the rise in\u00a0expenditures is\u00a0likely to\u00a0be\u00a0more distributed over time. At\u00a0the same time, should global economic slowdown be\u00a0more pronounced, including due to\u00a0tightening international trade restrictions and on\u00a0the back of\u00a0other geopolitical factors, this might lead to\u00a0strengthened volatility in\u00a0global commodity and financial markets, affecting exchange rate and inflation expectations.<\/div>\n
A\u00a0number of\u00a0internal conditions continue to\u00a0pose pro-inflationary risks over a\u00a0longer-term horizon. Significant risks are posed by\u00a0elevated and unanchored inflation expectations. The\u00a0mid-term\u00a0inflation dynamics may also be\u00a0affected by\u00a0fiscal policy parameters, including decisions on\u00a0the investment of\u00a0the liquid part of\u00a0the National Wealth Fund in\u00a0excess of\u00a0the threshold level set at\u00a07% of\u00a0GDP.<\/div>\n
The Bank of\u00a0Russia leaves mostly unchanged its estimates of\u00a0risks associated with wage movements 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 will consider the necessity of\u00a0further key rate reduction at\u00a0one of\u00a0the upcoming Board of\u00a0Directors\u2019 meetings. 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
The Bank of\u00a0Russia Board of\u00a0Directors will hold its next key rate review meeting on\u00a013\u00a0December 2019<\/a>. The press release on\u00a0the Bank of\u00a0Russia Board decision and the medium-term forecast are to\u00a0be\u00a0published at\u00a013:30 Moscow time.<\/div>\n
In\u00a0the follow-up to\u00a0the Board of\u00a0Directors meeting of\u00a025\u00a0October 2019 the Bank of\u00a0Russia released its\u00a0medium-term forecast<\/a>\u00a0in\u00a0connection to\u00a0the publication of\u00a0Monetary Policy Guidelines for\u00a02020\u20132022,\u00a0which are to\u00a0be\u00a0issued on\u00a029\u00a0October 2019.”<\/div>\n
\u00a0 \u00a0 www.CentralBankNews.info<\/a><\/span><\/div>\n
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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By CentralBankNews.info Russia’s central bank lowered its key interest rate for the fourth time this year due to a faster-than-expected decline in inflation and said it would consider further rate cuts in coming months if inflation continues to fall. The Bank of Russia cut its key interest rate by 50 basis points to 6.50 percent […]<\/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-158423","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/158423","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=158423"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/158423\/revisions"}],"predecessor-version":[{"id":158432,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/158423\/revisions\/158432"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=158423"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=158423"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=158423"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}