{"id":164617,"date":"2020-02-07T12:15:06","date_gmt":"2020-02-07T17:15:06","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=164617"},"modified":"2020-02-07T09:57:44","modified_gmt":"2020-02-07T14:57:44","slug":"russia-cuts-rate-25-bps-and-is-open-to-further-easing","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/02\/russia-cuts-rate-25-bps-and-is-open-to-further-easing\/","title":{"rendered":"Russia cuts rate 25 bps and is open to further easing"},"content":{"rendered":"
February 7, 2020<\/div>
\r\n<\/div><\/div>

By CentralBankNews.info<\/u><\/a>
\nRussia’s central bank lowered its key interest rate by another 25 basis points to 6.0 percent as inflation continues to decelerate and said it was willing to cut rates further in coming policy meetings if the economic situation develops as it expects.
\nIt is Bank of Russia’s first rate cut this year but the sixth since it began the current easing cycle in May 2019. Since then the rate has been lowered by a total of 175 basis points.
\n“Risks of a substantial global economic slowdown persist” and “deflationary risks still exceed pro-inflationary risks over the short-term horizon,” the central bank said, adding:
\n“If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate reduction at its upcoming meetings.”
\nRussia’s inflation rate fell to 2.4 percent in January from 3.0 percent in December, the 10th consecutive month of decelerating inflation and the lowest rate since June 2018.
\nThe decline was partly affected by last year’s hike in value-added-tax dropping out of the comparison and moderate price growth, the central bank said, forecasting annual inflation in 2020 of 3.5 to 4.0 percent and then 4.0 percent in 2021 and 2022, in line with its target.
\nThe rise in Russia’s ruble along with slower inflation among Russia’s trading partners is limiting import price inflation and the Bank of Russia expects inflation expectations to continue to decline.
\nRussia’s ruble has been firming since September 2018 but has dropped since mid-January and fell a further 1.0 percent in response to the rate cut.
\nThe ruble was trading at 63.99 to the U.S. dollar today, down 3.1 percent this year.
\nRussia’s economy is continuing to improve after a deep recession in 2015 and 2016, with growth in 2019 estimated at 1.3 percent, at the upper bound of the central bank’s forecast, despite a decline in exports.
\n“Economic activity continues to be constrained by weakening external demand for Russian exports on the back of a global economic slowdown,” the central bank said, with leading indicators pointing to weak business sentiment in the industrial sector, which is mainly geared to exports.
\nThe central bank kept its growth forecasts unchanged, expecting gross domestic product is expected to grow 1.5 to 2.5 percent this year and then 2.0 to 3.0 percent in 2022, helped by infrastructure projects.
\nRussia’s central bank embarked on a monetary easing cycle in January 2015 as it rolled back a sharp 750-basis-point rate hike in December 2014 that was aimed at protecting the ruble, which plunged in the wake of the country’s conflict with Ukraine.
\nFrom January 2015 to April 2018 the key interest rate was cut by a total of 9.75 percentage points as the ruble slowly recovered and inflation eased. But the easing cycle came to a halt after fresh U.S. sanctions were imposed over Russia’s meddling in the 2016 presidential election led to a 10 percent fall in the ruble and a 9 percent fall in the Moscow stock market.
\nIn September and December 2018 the central bank raised its rate twice by a total of 50 basis points to curb inflation from a combination of higher import prices from the lower ruble and a rise in VAT to 20 percent on Jan. 1, 2019.
\n<\/a>
\nThe Bank of Russia released the following press release:<\/p>\n

“On\u00a07 February 2020, the Bank of\u00a0Russia Board of\u00a0Directors decided to\u00a0cut\u00a0the key rate<\/a>\u00a0by\u00a025\u00a0bp to\u00a06.00% per annum. Inflation slowdown is\u00a0overshooting the forecast. Households\u2019 inflation expectations and price expectations of\u00a0businesses remain stable overall. In\u00a02019\u00a0H2, the growth rate of\u00a0the Russian economy picked\u00a0up. Risks of\u00a0a\u00a0substantial global economic slowdown persist. Disinflationary risks still exceed pro-inflationary risks over the short-term horizon. In\u00a0this context, given 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 holds open the prospect of\u00a0further key rate reduction at\u00a0its upcoming 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. The annual consumer price growth rate declined to\u00a02.4% in\u00a0January (from 3.0% in\u00a0December 2019) as\u00a0a\u00a0result of\u00a0both factoring out the effect of\u00a0the VAT rate hike and moderate price growth in\u00a0January. January results show that annual core inflation decreased to\u00a02.7% as\u00a0compared to\u00a03.1% in\u00a0December. According to\u00a0the Bank of\u00a0Russia\u2019s estimates, inflation indicators reflecting the most sustainable price movements are close to\u00a0or\u00a0below 3%.<\/div>\n
In\u00a0January, disinflationary factors continued to\u00a0exert considerable influence on\u00a0inflation. Annual growth in\u00a0prices of\u00a0food products and non-food goods continued to\u00a0decline. Expanded supply in\u00a0individual food market segments helps maintain low monthly (seasonally adjusted) and annual growth rates of\u00a0food prices. The 2019 ruble appreciation alongside with inflation slowdown in\u00a0Russia\u2019s trading partners limits growth of\u00a0import prices. Subdued demand continues to\u00a0influence inflation, including external demand.<\/div>\n
In\u00a0January, households\u2019 inflation expectations somewhat abated, while remaining elevated. Business price expectations remain stable. Annual inflation slowdown paves the way for a\u00a0future decline in\u00a0inflation expectations of\u00a0households and businesses.<\/div>\n
In\u00a0accordance with the Bank of\u00a0Russia forecast, given the monetary policy stance, annual inflation will come in\u00a0at\u00a03.5\u20134.0%\u00a0in\u00a02020 and will remain close to\u00a04% further\u00a0on.<\/div>\n
Monetary conditions.<\/b>\u00a0Monetary conditions have continued to\u00a0ease. 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; this will support the expansion of\u00a0corporate and mortgage lending. At\u00a0the same time, consumer lending gradually slows down, which is\u00a0to\u00a0a\u00a0large extent driven by\u00a0the tightening of\u00a0non-price conditions under the influence of\u00a0the Bank of\u00a0Russia\u2019s macroprudential measures.<\/div>\n
The Bank of\u00a0Russia will assess the effect of\u00a0the adopted key rate decisions on\u00a0monetary conditions and inflation movements.<\/div>\n
Economic activity.<\/b>\u00a0Rosstat\u2019s flash estimate shows that 2019\u00a0GDP growth totalled 1.3%, which corresponds to\u00a0the upper bound of\u00a0the Bank of\u00a0Russia\u2019s forecast of\u00a00.8\u20131.3%.\u00a0The dynamics of\u00a0final consumption expenditure made a\u00a0major contribution to\u00a0GDP growth in\u00a02019. The decline in\u00a0export quantities in\u00a0turn exerted considerable negative influence on\u00a0GDP dynamics.<\/div>\n
In\u00a0Q4, economic activity indicators mainly continued to\u00a0improve. At\u00a0end\u20142019, investment activity was supported by\u00a0an\u00a0accelerated increase in\u00a0capital budget expenditure, including owing to\u00a0the implementation of\u00a0national projects. Annual retail trade turnover and industrial production continued to\u00a0grow. However, leading indicators point to\u00a0a\u00a0still weak business sentiment in\u00a0industrial sector, which is\u00a0mostly specific of\u00a0export orders. Economic activity continues to\u00a0be\u00a0constrained by\u00a0weakening external demand for Russian exports on\u00a0the back of\u00a0a\u00a0global economic slowdown.<\/div>\n
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
The Bank of\u00a0Russia has left the\u00a02020\u20132022 GDP\u00a0growth forecast unchanged. The GDP growth rate will gradually increase from\u00a01.5\u20132.0%\u00a0in\u00a02020 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, reduced global economic growth 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 still exceed pro-inflationary risks over the short-term horizon. This is\u00a0primarily related to\u00a0the state of\u00a0domestic and external demand. Disinflationary risks associated with movements in\u00a0the prices of\u00a0certain food products persist, including on\u00a0the back of\u00a0a\u00a0rising supply. The 2019 ruble appreciation may continue to\u00a0influence price growth. The reaction of\u00a0both consumer and investment demand of\u00a0the private sector to\u00a0the easing of\u00a0monetary conditions and accommodative fiscal measures may be\u00a0limited by\u00a0the moderate sentiment of\u00a0consumers and businesses.<\/div>\n
Meanwhile, pro-inflationary factors should be\u00a0taken into consideration. Risks that food market trends may reverse cannot be\u00a0ruled out, given that the ratio of\u00a0temporary and permanent factors for this market is\u00a0hard to\u00a0estimate. At\u00a0the same time, the monetary policy easing that has already been undertaken may have a\u00a0stronger upward effect on\u00a0inflation than the Bank of\u00a0Russia estimates.<\/div>\n
Risks associated with trade disputes have somewhat abated. Nonetheless, the risk of\u00a0a\u00a0further slowdown in\u00a0global economic growth persists, including under the influence of\u00a0geopolitical factors, intensified volatility in\u00a0global commodity and financial markets, which may affect the exchange rate and inflation expectations. The coronavirus situation will be\u00a0an\u00a0additional uncertainty factor over next quarters.<\/div>\n
According to\u00a0Bank of\u00a0Russia estimates, the implementation of\u00a0additional social measures announced in\u00a0January will not have a\u00a0considerable pro-inflationary impact. At\u00a0the same time in\u00a02020, inflation dynamics will be\u00a0shaped by\u00a0the schedule of\u00a0budget expenditure.<\/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 holds open the prospect of\u00a0further key rate reduction at\u00a0its upcoming 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
In\u00a0the follow-up to\u00a0the Board of\u00a0Directors meeting of\u00a07\u00a0February 2020 the Bank of\u00a0Russia released its\u00a0medium-term forecast<\/a>.<\/div>\n
The Bank of\u00a0Russia Board of\u00a0Directors will hold its next key rate review meeting on\u00a020\u00a0March 2020<\/a>. The press release on\u00a0the Bank of\u00a0Russia Board decision is\u00a0to\u00a0be\u00a0published at\u00a013:30 Moscow time.”<\/div>\n
\u00a0 \u00a0 <\/span>www.CentralBankNews.info<\/a><\/span><\/div>\n

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

By CentralBankNews.info Russia’s central bank lowered its key interest rate by another 25 basis points to 6.0 percent as inflation continues to decelerate and said it was willing to cut rates further in coming policy meetings if the economic situation develops as it expects. It is Bank of Russia’s first rate cut this year but […]<\/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-164617","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/164617","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=164617"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/164617\/revisions"}],"predecessor-version":[{"id":164620,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/164617\/revisions\/164620"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=164617"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=164617"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=164617"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}