{"id":167000,"date":"2020-03-20T12:46:50","date_gmt":"2020-03-20T16:46:50","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=167000"},"modified":"2020-03-20T09:59:36","modified_gmt":"2020-03-20T13:59:36","slug":"russia-maintains-rate-any-inflation-rise-seen-temporary","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/03\/russia-maintains-rate-any-inflation-rise-seen-temporary\/","title":{"rendered":"Russia maintains rate, any inflation rise seen temporary"},"content":{"rendered":"
March 20, 2020<\/div>
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By CentralBankNews.info<\/u><\/a><\/p>\n

Russia’s central bank left its key interest rate steady at 6.0 percent despite a plunge in the ruble’s exchange rate, saying any rise in inflation will be temporary as slower global and domestic growth will limit price hikes and inflation will return to its target in 2021.<\/p>\n

The Bank of Russia, which has cut rates six times since May 2019 by a total of 175 basis points, added the spread of the coronavirus – which had led to restrictions in international trade and travel, and a rapid deterioration of commodity and financial markets – may lead to a downturn in already-moderate economic activity in coming quarters.<\/p>\n

And while the growth path will depend on the scale of the fallout from the spread of the virus, Covid-19, and the actions taken to counter it, the central bank said the economy will be supported by measures taken by itself and the government.<\/p>\n

So far Russia has reported relatively few infections and only one death from the coronavirus, but on the government on Monday announced a $4 billion package of measures to help businesses that are facing lower demand, and has banned foreigners from entering the country, shut its land borders with neighboring countries, closed schools, and restricted outdoor and indoor gatherings.<\/p>\n

In addition, domestic demand is to receive a boost from additional social policy measures announced in January along with national projects that are being implemented.<\/p>

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Russia’s ruble plunged 26 percent from Jan. 12 to March 18, hit by the collapse in oil prices from the dispute with Saudi Arabia and the flight to the safe-haven U.S. dollar amid the fallout from the spread of the coronavirus worldwide.<\/p>\n

In recent days the ruble has bounced back slightly though it fell in response today to trade at 79.6 to the U.S. dollar, down 23 percent since Jan. 12 and 22 percent this year.<\/p>\n

Russia’s inflation rate eased to 2.3 percent in February from 2.4 percent in January but the central bank said it may temporarily exceed its 4.0 percent target due to the weaker ruble.<\/p>\n

This rise in consumer prices may also trigger a temporary rise in inflation expectations but slowing domestic and external demand will be a “significant disinflationary factor,” and inflation should return to 4 percent in 2021.<\/p>\n

Russia’s economy has been slowly recovering since a deep recession in 2015 and 2016 and in February the central bank forecast growth this year of 1.5 to 2.5 percent, up from 1.3 percent in 2019, \u00a0helped by infrastructure projects.
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The Bank of Russia issued the following press release:<\/p>\n

“On\u00a020 March 2020, the\u00a0Bank of\u00a0Russia Board of\u00a0Directors decided to\u00a0keep\u00a0the\u00a0key\u00a0rate<\/a>\u00a0at\u00a06.00% per\u00a0annum. In\u00a0February\u00a0\u2014 March, the\u00a0situation has\u00a0been developing with a\u00a0significant deviation from the\u00a0Bank of\u00a0Russia\u2019s forecast under the\u00a0baseline scenario. This is\u00a0related to\u00a0changes in\u00a0external conditions: the\u00a0spread of\u00a0the\u00a0coronavirus epidemic and\u00a0a\u00a0sharp drop in\u00a0oil\u00a0prices. The\u00a0ruble\u2019s depreciation is\u00a0a\u00a0temporary proinflationary factor. It\u00a0might prompt annual inflation to\u00a0exceed the\u00a0target level this year. However, the\u00a0dynamics of\u00a0domestic and\u00a0external demand will exert a\u00a0meaningful constraining influence on\u00a0inflation on\u00a0the\u00a0back of\u00a0a\u00a0pronounced slowdown of\u00a0global economic growth and\u00a0increased uncertainty. The\u00a0package of\u00a0measures adopted by\u00a0the\u00a0Government and\u00a0the\u00a0Bank of\u00a0Russia ensures financial stability and\u00a0will support the\u00a0economy. All\u00a0these factors were taken into account when making the\u00a0key\u00a0rate decision. Given the\u00a0current monetary policy stance, annual inflation will return to\u00a04% in\u00a02021.<\/i><\/div>\n
Moving forward, in\u00a0its\u00a0key\u00a0rate decision-making the\u00a0Bank of\u00a0Russia will take into account actual and\u00a0expected inflation dynamics relative to\u00a0the\u00a0target and\u00a0economic developments over the\u00a0forecast horizon, as\u00a0well as\u00a0risks posed by\u00a0domestic and\u00a0external conditions and\u00a0the\u00a0reaction of\u00a0financial markets.<\/i><\/div>\n
Inflation dynamics.\u00a0<\/b>In\u00a02020, inflation may\u00a0temporarily exceed the\u00a0target level. It\u00a0is\u00a0expected to\u00a0return to\u00a04% in\u00a02021.<\/div>\n
The\u00a0temporary acceleration of\u00a0annual inflation in\u00a0the\u00a0coming months will be\u00a0caused by\u00a0the\u00a0weakening of\u00a0the\u00a0ruble in\u00a0February\u00a0\u2014 March, which is\u00a0related to\u00a0changes in\u00a0external conditions: a\u00a0worsening situation in\u00a0global financial markets in\u00a0the\u00a0face of\u00a0a\u00a0threat of\u00a0a\u00a0global recession on\u00a0the\u00a0back of\u00a0the\u00a0coronavirus epidemic and\u00a0a\u00a0sharp drop in\u00a0oil\u00a0prices. The\u00a0observed weakening of\u00a0the\u00a0ruble and\u00a0the\u00a0consecutive acceleration of\u00a0consumer price growth rates may\u00a0cause a\u00a0temporary rise in\u00a0inflation expectations of\u00a0households and\u00a0businesses.<\/div>\n
However, slowing growth in\u00a0both domestic and\u00a0external demand is\u00a0a\u00a0significant disinflationary factor. It\u00a0will have a\u00a0constraining effect on\u00a0inflation. In\u00a0this context, given the\u00a0current monetary policy stance, annual inflation will return to\u00a04% in\u00a02021.<\/div>\n
Monetary conditions<\/b>\u00a0have tightened under the\u00a0influence of\u00a0negative external factors. The\u00a0worsening situation in\u00a0the\u00a0global economy and\u00a0a\u00a0sharp drop in\u00a0oil\u00a0prices have prompted growth in\u00a0risk premiums on\u00a0a\u00a0wide range of\u00a0financial assets, including in\u00a0emerging market economies. In\u00a0this context, OFZ\u00a0and\u00a0corporate bond yields have increased, certain banks have started to\u00a0raise their loan and\u00a0deposit interest rates. The\u00a0Bank of\u00a0Russia\u2019s measures taken to\u00a0curb financial stability risks and\u00a0regulatory relaxations adopted will support credit expansion, including in\u00a0the\u00a0most vulnerable sectors, and\u00a0will help limit the\u00a0scale of\u00a0tightening of\u00a0monetary conditions.<\/div>\n
Economic activity.<\/b>\u00a0In\u00a0February\u00a0\u2014 March, the\u00a0situation has\u00a0been developing with a\u00a0significant deviation from the\u00a0Bank of\u00a0Russia\u2019s forecast under the\u00a0baseline scenario. This is\u00a0related to\u00a0worsening global growth prospects amid the\u00a0spreading coronavirus and\u00a0restrictions on\u00a0cross-border cargo and\u00a0passenger traffic, as\u00a0well as\u00a0to\u00a0a\u00a0rapid deterioration of\u00a0dynamics in\u00a0global commodity and\u00a0financial markets. These factors may\u00a0cause the\u00a0moderate growth of\u00a0the\u00a0Russian economy in\u00a0the\u00a0beginning of\u00a0the\u00a0year to\u00a0change to\u00a0a\u00a0downturn of\u00a0the\u00a0economic activity in\u00a0the\u00a0coming quarters.<\/div>\n
The\u00a0Russian economy\u2019s growth path will in\u00a0many ways depend on\u00a0the\u00a0scale of\u00a0the\u00a0fallout from the\u00a0further spread of\u00a0the\u00a0coronavirus and\u00a0the\u00a0action to\u00a0counter\u00a0it, alongside with the\u00a0impact of\u00a0this action on\u00a0production, demand and\u00a0business and\u00a0consumer sentiment. The\u00a0Russian economy will gain support from the\u00a0package of\u00a0the\u00a0Government and\u00a0the\u00a0Bank of\u00a0Russia\u2019s economic measures to\u00a0counter the\u00a0consequences of\u00a0the\u00a0coronavirus pandemic and\u00a0financial market volatility. Domestic demand is\u00a0set\u00a0to\u00a0receive a\u00a0boost this year from additional social policy measures announced in\u00a0January, as\u00a0well as\u00a0the\u00a0national projects being implemented as\u00a0scheduled.<\/div>\n
Inflation risks.<\/b>\u00a0There has\u00a0been a\u00a0rise in\u00a0short-term proinflationary risks, driven by\u00a0a\u00a0potentially more pronounced pass-through of\u00a0the\u00a0ruble weakening into prices, coupled with the\u00a0impact of\u00a0the\u00a0temporary increase in\u00a0current demand for\u00a0a\u00a0number of\u00a0products and\u00a0services, triggered by\u00a0consumers\u2019 drive to\u00a0accumulate stocks. However, a\u00a0strong weakening of\u00a0external demand, a\u00a0potential decline in\u00a0consumer activity and\u00a0lag\u00a0effects of\u00a0the\u00a0tightened monetary conditions may\u00a0emerge as\u00a0a\u00a0source of\u00a0significant disinflationary risks over a\u00a0medium-term horizon.<\/div>\n
Moving forward, in\u00a0its\u00a0key\u00a0rate decision-making the\u00a0Bank of\u00a0Russia will take into account actual and\u00a0expected inflation dynamics relative to\u00a0the\u00a0target and\u00a0economic developments over the\u00a0forecast horizon, as\u00a0well as\u00a0risks posed by\u00a0domestic and\u00a0external conditions and\u00a0the\u00a0reaction of\u00a0financial markets.<\/div>\n
In\u00a0parallel with its\u00a0key\u00a0rate decision, the\u00a0Bank of\u00a0Russia took a\u00a0number of\u00a0measures towards ensuring financial stability, supporting the\u00a0economy and\u00a0the\u00a0financial sector amid the\u00a0coronavirus pandemic. These measures are\u00a0intended\u00a0to, among other things, maintain access of\u00a0small and\u00a0medium enterprises to\u00a0bank lending, shore up\u00a0mortgage lending and\u00a0protect the\u00a0interests of\u00a0people affected by\u00a0the\u00a0spreading pandemic. In\u00a0a\u00a0similar vein, there are\u00a0plans to\u00a0take action to\u00a0relax administrative burden for\u00a0the\u00a0financial sector, with a\u00a0view to\u00a0supporting the\u00a0sector\u2019s lending capabilities.<\/div>\n
The\u00a0Bank of\u00a0Russia Board of\u00a0Directors will hold its\u00a0next key\u00a0rate review meeting on\u00a024\u00a0April 2020<\/a>. The\u00a0press release on\u00a0the\u00a0Bank of\u00a0Russia Board decision and\u00a0the\u00a0medium-term forecast are\u00a0to\u00a0be\u00a0published at\u00a013:30 Moscow time.”<\/div>\n
\u00a0 <\/span>\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 left its key interest rate steady at 6.0 percent despite a plunge in the ruble’s exchange rate, saying any rise in inflation will be temporary as slower global and domestic growth will limit price hikes and inflation will return to its target in 2021. The Bank of Russia, which has […]<\/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-167000","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/167000","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=167000"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/167000\/revisions"}],"predecessor-version":[{"id":167002,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/167000\/revisions\/167002"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=167000"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=167000"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=167000"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}