{"id":169330,"date":"2020-04-24T11:22:24","date_gmt":"2020-04-24T15:22:24","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=169330"},"modified":"2020-04-24T10:48:50","modified_gmt":"2020-04-24T14:48:50","slug":"russia-cuts-rate-7th-time-and-ready-to-cut-further","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/04\/russia-cuts-rate-7th-time-and-ready-to-cut-further\/","title":{"rendered":"Russia cuts rate 7th time and ready to cut further"},"content":{"rendered":"
April 24, 2020<\/div>
\r\n<\/div><\/div>

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

\u00a0 Russia’s central bank cut its rate for the second time this year, as widely expected, as it switched to an accommodative monetary policy stance and said it was ready to cut the rate further if the situation develops as it expects.<\/span>
\n\u00a0 \u00a0 \u00a0The Bank of Russia cut its key rate by 50 basis points to 5.50 percent and has now cut the rate 75 basis points this year following a cut in February.<\/span>
\n\u00a0 \u00a0 \u00a0Since June 2019, when it began easing its policy stance in light of slowing inflation, it has cut the rate seven times and by a total of 225 basis points.<\/span>
\n\u00a0 \u00a0 \u00a0Since its last policy meeting in March, when the central bank left the rate unchanged, “the situation has changed dramatically,” the bank said, pointing to what it said was a “profound” revision of its view of economic developments and inflation trends over the next three years.<\/span>
\n\u00a0 \u00a0 \u00a0\u00a0Elvira Nabiullina, the bank’s governor, said three major events had\u00a0happened<\/span>\u00a0in the last month, including the spread of the coronavirus,\u00a0which drastically slowed the global\u00a0economy, a slump in oil prices, and the\u00a0introduction of \u00a0nation-wide restrictions to limit the spread of\u00a0the virus.<\/span><\/span>
\n\u00a0 \u00a0 \u00a0 Surveys show over 80 percent of Russian businesses are experiencing the influence of the pandemic and the government’s restrictions to contain the\u00a0spread of Covid-19.<\/span><\/span>
\n\u00a0 \u00a0 \u00a0The combined effect of these changes is to create “material and prolonged disinflationary” effects on prices that are offsetting any temporary upward pressure on\u00a0inflation from lower oil prices.<\/span>
\n\u00a0 \u00a0 \u00a0The Bank of Russia now expects Russia’s economy to\u00a0contract by between 4.0 and 6.0 percent this\u00a0year, a sharp change from its February forecast of 1.5 to 2.0 percent growth, mainly due to a 10 to 15 percent fall in exports.<\/span>
\n\u00a0 \u00a0 \u00a0“In these conditions, GDP will shrink year-on-year in the third and fourth quarters, that is the annual rate of economic growth will be negative,”\u00a0<\/span>\u00a0<\/span>Nabiullina said, adding:<\/span><\/span>
\n\u00a0\u00a0<\/span>\u00a0 \u00a0 “The economic situation will be returning by normal step-by-step,”\u00a0<\/span>Nabiullina said, as restrictions are gradually lifted in the second\u00a0quarter and economic activity recovers in the third and fourth quarters.<\/span><\/span>
\n\u00a0 \u00a0 \u00a0However, the secondary effects will continue to manifest in the future, she cautioned, expecting\u00a0<\/span>economic growth of\u00a0<\/span><\/span>between 2.8 and 4.8\u00a0percent in 2021 and then 1.5 to 3.5\u00a0percent in 2022.<\/span><\/span>
\n\u00a0 \u00a0 \u00a0Last year Russia’s gross domestic product grew 1.3 percent after 2.5 percent in 2018.<\/span><\/span>
\n\u00a0 \u00a0 \u00a0The forecast is based on what it said was a “conservative” view of oil prices, especially this year, assuming they will slowly rise to average $25 per barrel in the\u00a0fourth quarter from an average of $15 in the second quarter as the large stocks of oil will limit any price rise even if there are new OPEC+ agreements.<\/span>
\n\u00a0 \u00a0 \u00a0 Next year oil prices are seen rising to\u00a0an average of $35 per barrel from an average of $27 this year – sharply down from 2019’s average of $64 –\u00a0and then to $45 in 2022 as global demand picks up and oil stocks decline.<\/span>
\n\u00a0 \u00a0 \u00a0The collapse in domestic and global demand will have a significant\u00a0disinflationary effect, with the central bank now\u00a0expecting inflation to average 3.1 to 3.9 percent this year, down from 2019’s 4.5\u00a0percent and the\u00a0previous forecast of 3.5 to 4.0 percent.<\/span>
\n\u00a0 \u00a0 \u00a0Inflation in March and\u00a0April will still reflect the temporary response of consumer prices to the weaker ruble and\u00a0higher demand for certain products, and as of April 20, inflation was around 3.1 percent compared with 2.5\u00a0percent in March.<\/span>
\n\u00a0 \u00a0 \u00a0“Inflation expectations of households and businesses have increased,\u00a0but in the face of falling\u00a0demand their change will be of short-term nature,” the\u00a0central bank said.<\/span>
\n\u00a0 \u00a0 \u00a0In 2021 and 2022 inflation is then seen settling at the bank’s 4.0 percent target.<\/span>
\n\u00a0 \u00a0 \u00a0After slowly rising from\u00a0September 2018 to January, Russia’s ruble tumbled from February to mid-March but has been rising in the last week.<\/span>
\n\u00a0 \u00a0 \u00a0Today the ruble was trading at 74.4 to the U.S. dollar, down 16.7\u00a0percent this year.\u00a0<\/span>
\n<\/a>
\n\u00a0 \u00a0 \u00a0<\/span>
\n\u00a0 \u00a0<\/span>\u00a0 \u00a0 \u00a0The Bank of Russia released the following press release and statement by its governor,\u00a0<\/span>Elvira Nabiullina:<\/span><\/p>\n

“On\u00a024 April 2020, the\u00a0Bank of\u00a0Russia Board of\u00a0Directors decided to\u00a0cut\u00a0the\u00a0key\u00a0rate<\/a>by\u00a050\u00a0bp\u00a0to\u00a05.50%<\/span>\u00a0<\/span>per\u00a0annum. Since the\u00a0March Board of\u00a0Directors meeting, the\u00a0situation has\u00a0changed dramatically. Significant restrictive measures have been introduced to\u00a0combat the\u00a0coronavirus pandemic both in\u00a0Russia and\u00a0across the\u00a0world, which negatively influences economic activity. This creates material and\u00a0prolonged disinflationary influence on\u00a0price dynamics from the\u00a0aggregate demand perspective, which offsets the\u00a0effect of\u00a0temporary pro-inflationary factors, including those related to\u00a0the\u00a0fall in\u00a0oil\u00a0prices. At\u00a0the\u00a0same time the\u00a0situation in\u00a0global financial markets has\u00a0stabilised after a\u00a0period of\u00a0particularly high volatility in\u00a0March. The\u00a0Bank of\u00a0Russia has\u00a0reviewed its\u00a0baseline forecast scenario and\u00a0is\u00a0shifting to\u00a0accommodative monetary policy. According to\u00a0the\u00a0Bank of\u00a0Russia\u2019s forecast, given the\u00a0monetary policy stance, annual inflation will reach\u00a03.8-4.8%\u00a0in\u00a02020\u00a0and will stabilise around\u00a04% later\u00a0on.<\/span><\/div>\n
If\u00a0the\u00a0situation develops in\u00a0line with the\u00a0baseline forecast, the\u00a0Bank of\u00a0Russia holds open the\u00a0prospect of\u00a0further key\u00a0rate reduction at\u00a0its\u00a0upcoming meetings. 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.<\/span><\/div>\n
Inflation dynamics<\/span>\u00a0this year and\u00a0further on\u00a0will be\u00a0largely influenced by\u00a0a\u00a0steep decline in\u00a0domestic and\u00a0external demand. The\u00a0drop in\u00a0demand will become a\u00a0significant disinflationary factor due\u00a0to\u00a0the\u00a0current and\u00a0deferred economic effect of\u00a0the\u00a0restrictive measures introduced to\u00a0combat the\u00a0spread of\u00a0the\u00a0coronavirus pandemic in\u00a0Russia and\u00a0globally. Inflation expectations of\u00a0households and\u00a0businesses have increased, but\u00a0in\u00a0the\u00a0face of\u00a0falling demand their change will be\u00a0of\u00a0a\u00a0short-term nature.<\/div>\n
The\u00a0influence of\u00a0short-term pro-inflationary factors will be\u00a0limited. Inflation dynamics data for\u00a0March and\u00a0April reflect a\u00a0temporary response of\u00a0consumer prices to\u00a0the\u00a0weaker ruble and\u00a0the\u00a0episodes of\u00a0increased demand for\u00a0certain product groups. In\u00a0March, annual inflation rose to\u00a02.5% (compared to\u00a02.3% in\u00a0February). According to\u00a0preliminary data as\u00a0of\u00a020\u00a0April, annual consumer price growth rate was\u00a0around 3.1%.<\/div>\n
According to\u00a0the\u00a0Bank of\u00a0Russia\u2019s baseline forecast, given the\u00a0monetary policy stance, annual inflation will reach\u00a03.8-4.8%\u00a0in\u00a02020\u00a0and will stabilise around\u00a04% later\u00a0on.<\/div>\n
Monetary conditions<\/span>\u00a0remain overall unchanged. Interest rates showed mixed dynamics across different financial market segments. The\u00a0deposit and\u00a0credit market largely saw\u00a0a\u00a0certain increase in\u00a0interest rates reflecting the\u00a0growth of\u00a0OFZ yields in\u00a0March on\u00a0the\u00a0back of\u00a0falling prices and\u00a0rising risk premiums in\u00a0global financial markets. In\u00a0April, OFZ\u00a0yields declined, coming close to\u00a0the\u00a0levels observed this February. This was\u00a0facilitated by\u00a0the\u00a0Bank of\u00a0Russia\u2019s measures to\u00a0support financial stability as\u00a0well as\u00a0by\u00a0declining volatility in\u00a0global financial markets, including owing to\u00a0actions taken by\u00a0central banks. Lower OFZ\u00a0yields create conditions for\u00a0reduction in\u00a0interest rates in\u00a0other financial market segments. In\u00a0addition, the\u00a0Bank of\u00a0Russia\u2019s decision to cut the\u00a0key\u00a0rate along with regulatory relaxations will compensate for\u00a0the\u00a0tightening of\u00a0monetary conditions on\u00a0the\u00a0back of\u00a0increased risks. This measure, together with other measures implemented by\u00a0the\u00a0Bank of\u00a0Russia, will support lending, including in\u00a0the\u00a0most vulnerable economic sectors.<\/div>\n
Economic activity.\u00a0<\/span>The\u00a0spread of\u00a0the\u00a0coronavirus pandemic in\u00a0Russia and\u00a0the\u00a0restrictive measures in\u00a0place to\u00a0address it\u00a0have combined with a\u00a0drop in\u00a0external demand and\u00a0a\u00a0further decline in\u00a0the\u00a0prices of\u00a0oil\u00a0and\u00a0other export goods to\u00a0make a\u00a0substantial negative impact on\u00a0economic activity. Based on\u00a0leading indicators, including surveys, activity has\u00a0seen a\u00a0steep decline in\u00a0both the\u00a0services sector and\u00a0manufacturing. Both domestic and\u00a0external markets have registered a\u00a0contraction in\u00a0volumes of\u00a0new\u00a0orders. Business sentiment and\u00a0expectations have both deteriorated. In\u00a0this environment, Q2\u00a0GDP is\u00a0set\u00a0to\u00a0decline; however, economic activity is\u00a0expected to\u00a0gradually recover as\u00a0the\u00a0coronavirus-linked situation normalises and\u00a0restrictive measures ease both nationwide and\u00a0across the\u00a0world.<\/div>\n
The\u00a0Bank of\u00a0Russia has\u00a0substantially reviewed its\u00a0baseline scenario parameters. GDP\u00a0is\u00a0forecast to\u00a0decrease by\u00a04-6%\u00a0in\u00a02020. The\u00a0Russian economy is\u00a0thereafter expected to\u00a0follow a\u00a0recovery path with growth predicted to\u00a0total\u00a02.8-4.8%\u00a0in\u00a02021\u00a0and\u00a01.5-3.5%\u00a0in\u00a02022.\u00a0The\u00a0Bank of\u00a0Russia\u2019s baseline scenario assumes the\u00a0average price of\u00a0Urals of\u00a0$27\u00a0per barrel in\u00a02020 with its\u00a0subsequent rise to\u00a0$35\u00a0and $45\u00a0per barrel in\u00a02021\u00a0and 2022\u00a0respectively.<\/div>\n
The\u00a0pace of\u00a0economic recovery will in\u00a0large measure depend on\u00a0the\u00a0amount and\u00a0efficiency of\u00a0the\u00a0Government and\u00a0Bank of\u00a0Russia\u2019s measures aimed at\u00a0mitigating the\u00a0fallout from the\u00a0coronavirus pandemic.<\/div>\n
Inflation risks.<\/span>\u00a0Disinflationary risks under the\u00a0baseline scenario are\u00a0substantially driven by\u00a0the\u00a0uncertainty as\u00a0to\u00a0the\u00a0spread of\u00a0the\u00a0coronavirus pandemic in\u00a0Russia and\u00a0globally, the\u00a0scale of\u00a0potential measures to\u00a0fight it\u00a0and\u00a0their impact on\u00a0economic activity, as\u00a0well as\u00a0on\u00a0the\u00a0speed of\u00a0a\u00a0global and\u00a0domestic economic recovery once restrictive measures have been lifted.<\/div>\n
The\u00a0Bank of\u00a0Russia notes a\u00a0decline in\u00a0short-term pro-inflationary risks related to\u00a0a\u00a0more considerable potential pass-through of\u00a0the\u00a0ruble weakening into prices, as\u00a0well as\u00a0to\u00a0the\u00a0episodes of\u00a0high demand for\u00a0select product categories. However, disruptions in\u00a0supply chains in\u00a0connection with the\u00a0restrictive measures in\u00a0place may\u00a0put\u00a0localised upward pressure on\u00a0prices. Some periods of\u00a0heightened volatility in\u00a0global markets may\u00a0well feed into exchange rate and\u00a0inflation expectations.<\/div>\n
When making its\u00a0key\u00a0rate decision, the\u00a0Bank of\u00a0Russia also considered the\u00a0objective of\u00a0maintaining financial stability, especially in\u00a0the\u00a0context of\u00a0an\u00a0unsteady environment in\u00a0international commodity and\u00a0financial markets.<\/div>\n
If\u00a0the\u00a0situation develops in\u00a0line with the\u00a0baseline forecast, the\u00a0Bank of\u00a0Russia holds open the\u00a0prospect of\u00a0further key\u00a0rate reduction at\u00a0its\u00a0upcoming meetings. In\u00a0its\u00a0further key\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\u00a0the\u00a0follow-up to\u00a0the\u00a0Board of\u00a0Directors meeting of\u00a024\u00a0April 2020\u00a0the Bank of\u00a0Russia released its\u00a0medium-term forecast<\/a>.<\/div>\n
The\u00a0Bank of\u00a0Russia Board of\u00a0Directors will hold its\u00a0next key\u00a0rate review meeting on\u00a019\u00a0June 2020<\/a>. The\u00a0press release on\u00a0the\u00a0Bank of\u00a0Russia Board decision is\u00a0to\u00a0be\u00a0published at\u00a013:30 Moscow time.”<\/div>\n
<\/div>\n

Statement by\u00a0Bank of\u00a0Russia Governor Elvira Nabiullina in\u00a0follow-up\u00a0to\u00a0Board of\u00a0Directors meeting on\u00a024\u00a0April 2020:<\/span><\/span><\/h1>\n
\n

 <\/p>\n

Today, the\u00a0Board of\u00a0Directors has\u00a0decided to\u00a0cut\u00a0the\u00a0key\u00a0rate by\u00a050\u00a0bp to\u00a05.50% per\u00a0annum. This implies that we\u00a0have switched to\u00a0<\/span>accommodative\u00a0<\/span>monetary policy. Moreover, we\u00a0hold open the\u00a0prospect of\u00a0further key\u00a0rate reduction if\u00a0the\u00a0situation develops in\u00a0line with the\u00a0updated baseline forecast of\u00a0the\u00a0Bank of\u00a0Russia.\u00a0<\/span><\/div>\n
Our\u00a0today\u2019s decision is\u00a0based on\u00a0the\u00a0profound revision of\u00a0our\u00a0view of\u00a0economic development and\u00a0inflation trends in\u00a0the\u00a0next three years.<\/div>\n
Since the\u00a0last Board of\u00a0Directors\u2019 revision of\u00a0the\u00a0key\u00a0rate, three events have happened which have defined our\u00a0view of\u00a0the\u00a0situation. They are\u00a0primarily associated with the\u00a0spread of\u00a0the\u00a0coronavirus pandemic. Firstly, this is\u00a0a\u00a0drastic decline in\u00a0the\u00a0global economy. Secondly, there has\u00a0been another round of\u00a0a\u00a0slump in\u00a0oil\u00a0prices, despite the\u00a0new\u00a0OPEC+\u00a0deal. Thirdly, the\u00a0Government has\u00a0introduced nation-wide restrictions. As\u00a0a\u00a0result, a\u00a0large number of\u00a0businesses have suspended their operations or\u00a0switched to\u00a0the\u00a0remote work mode. A\u00a0lot\u00a0of\u00a0citizens are\u00a0currently in\u00a0self-isolation.<\/div>\n
As\u00a0to\u00a0positive factors, I\u00a0would focus on\u00a0a\u00a0slight stabilisation in\u00a0global financial markets as\u00a0compared to\u00a0March, which was\u00a0largely driven by\u00a0measures being implemented by\u00a0the\u00a0central banks of\u00a0reserve-currency countries.<\/div>\n
Therefore, given all\u00a0the\u00a0developments, we\u00a0have completely reviewed our\u00a0economic forecast. Our\u00a0today\u2019s decision relies exactly on\u00a0the\u00a0forecast, and\u00a0not\u00a0on\u00a0the\u00a0latest statistics we\u00a0are\u00a0receiving. The\u00a0statistics still show the\u00a0previous month\u2019s situation and\u00a0cannot provide a\u00a0clear view to\u00a0estimate further trends. Building our\u00a0forecast, we\u00a0were rather taking into account leading indicators of\u00a0the\u00a0economic situation, including data on\u00a0electric power consumption, financial flows, household spending, as\u00a0well as\u00a0the\u00a0experience of\u00a0other countries where the\u00a0pandemic has\u00a0been spreading for\u00a0a\u00a0longer period.<\/div>\n
I\u00a0will now\u00a0dwell on\u00a0the\u00a0main assumptions behind our\u00a0baseline forecast<\/span>.<\/div>\n
Our\u00a0forecast relies on\u00a0a\u00a0conservative view of\u00a0oil\u00a0prices, especially in\u00a02020. We\u00a0assume that they will be\u00a0slowly growing from the\u00a0average level of\u00a0USD\u00a015\u00a0per barrel in\u00a0the\u00a0second quarter to\u00a0USD\u00a025\u00a0per barrel in\u00a0the\u00a0fourth quarter. There are\u00a0large oil\u00a0stocks accumulated, with a\u00a0downfall in\u00a0global demand. This will limit the\u00a0recovery of\u00a0oil\u00a0prices, even if\u00a0the\u00a0new\u00a0OPEC+ agreement is\u00a0fully complied with. Further\u00a0on, oil\u00a0prices are\u00a0expected to\u00a0gradually rise to\u00a0USD\u00a045\u00a0per barrel in\u00a02022\u00a0as global demand picks up\u00a0and\u00a0oil\u00a0stock levels decrease.<\/div>\n
Another key\u00a0assumption of\u00a0our\u00a0forecast is\u00a0the\u00a0duration of\u00a0the\u00a0coronavirus pandemic and\u00a0the\u00a0restrictions implemented in\u00a0Russia and\u00a0abroad. Our\u00a0estimates suggest that governments will be\u00a0gradually lifting or\u00a0considerably easing the\u00a0majority of\u00a0current restrictions in\u00a0the\u00a0second quarter. In\u00a0this case, we\u00a0can\u00a0expect that in\u00a0the\u00a0third and\u00a0fourth quarters economic activity will be\u00a0recovering quarter-on-quarter.<\/div>\n
The\u00a0economic situation<\/span>\u00a0will be\u00a0returning to\u00a0normal step-by-step. The\u00a0direct adverse impact of\u00a0the\u00a0restrictions primarily falls on\u00a0this quarter, while their secondary effects will continue to\u00a0manifest in\u00a0the\u00a0future. According to\u00a0our\u00a0surveys, over\u00a080% of\u00a0the\u00a0businesses across various industries have been experiencing the\u00a0influence of\u00a0the\u00a0coronavirus pandemic and\u00a0current restrictions. Companies\u2019 business sentiment has\u00a0materially declined. It\u00a0will take time to\u00a0restore business processes, logistics and\u00a0production chains, offset the\u00a0reduction in\u00a0profit and\u00a0revenue, build up\u00a0reserves and\u00a0savings that have been used to\u00a0a\u00a0greater or\u00a0lesser extent over the\u00a0second quarter. Combined with uncertainty regarding potential changes in\u00a0the\u00a0external environment, this will limit production, investment and\u00a0consumer activity. In\u00a0these conditions, GDP\u00a0will shrink year-on-year in\u00a0the\u00a0third and\u00a0fourth quarters, that is\u00a0the\u00a0annual rate of\u00a0economic growth will be\u00a0negative.<\/div>\n
According to\u00a0the\u00a0Bank of\u00a0Russia\u2019s forecast, GDP\u00a0will overall decrease by\u00a04\u20136%\u00a0in\u00a02020. The\u00a0major contributor to\u00a0this reduction will be\u00a0a\u00a0decline in\u00a0exports that may\u00a0reach from\u00a010% to\u00a015%. Moreover, fixed capital investment will also substantially decrease (by\u00a06\u201310%)\u00a0compared to\u00a0the\u00a0previous year. Companies will be\u00a0primarily using their financial resources to\u00a0restore their daily operations. Uncertainty about the\u00a0prospects of\u00a0domestic and\u00a0external demand will be\u00a0confining investment plans. The\u00a0decline in\u00a0production and\u00a0investments will be\u00a0confining the\u00a0opportunities for\u00a0an\u00a0upturn in\u00a0income. Consumer demand will be\u00a0shrinking. The\u00a0measures implemented by\u00a0the\u00a0Government and\u00a0the\u00a0Bank of\u00a0Russia will support the\u00a0economy, and\u00a0specifically the\u00a0most affected industries.<\/div>\n
Economic growth in\u00a02021\u20132022\u00a0will largely be\u00a0recovery-type. According to\u00a0our\u00a0forecast, GDP\u00a0will expand by\u00a03\u20135%\u00a0in\u00a02021\u00a0and by\u00a01.5\u20133.5%\u00a0in\u00a02022. GDP\u00a0growth will be\u00a0promoted by\u00a0a\u00a0further implementation of\u00a0national projects. However, our\u00a0baseline forecast factors in\u00a0only the\u00a0already effective budget support measures.<\/div>\n
An\u00a0upturn in\u00a0the\u00a0economy and\u00a0domestic demand will also be\u00a0driven by\u00a0the\u00a0easing of\u00a0monetary conditions<\/span>\u00a0resulting from the\u00a0monetary policy pursued. This will support lending, and\u00a0its\u00a0growth rate will rise from\u00a03\u20138%\u00a0this year to\u00a06\u201311%\u00a0in\u00a02021\u20132022.The\u00a0lending potential will also be\u00a0maintained owing to\u00a0the\u00a0regulatory easing and\u00a0the\u00a0expansion of\u00a0the\u00a0Bank of\u00a0Russia\u2019s specialised refinancing instruments.<\/div>\n
According to\u00a0our\u00a0estimates, the\u00a0easing of\u00a0monetary policy is\u00a0needed to\u00a0maintain annual\u00a0inflation<\/span>\u00a0close to\u00a04% over the\u00a0forecast horizon. The\u00a0slump in\u00a0domestic and\u00a0external demand this year will be\u00a0considerably containing inflation, which induces the\u00a0risk of\u00a0its\u00a0substantial deviation downwards from the\u00a0target in\u00a02021\u00a0and over a\u00a0medium-term horizon if\u00a0no\u00a0additional monetary policy measures are\u00a0introduced.<\/div>\n
The\u00a0disinflationary pressure of\u00a0weak demand will offset the\u00a0effect of\u00a0temporary proinflationary factors, that\u00a0is, the\u00a0ruble weakening and\u00a0the\u00a0observed elevated demand for\u00a0individual products, already this year. We\u00a0believe that a\u00a0rise in\u00a0inflation expectations caused by\u00a0the\u00a0above factors will also be\u00a0temporary.<\/div>\n
We\u00a0expect that the\u00a0impact of\u00a0limited demand on\u00a0inflation will be\u00a0stable and\u00a0long-lasting. Given the\u00a0transmission lag\u00a0of\u00a0monetary policy, we\u00a0should take actions already\u00a0now. Based on\u00a0our\u00a0forecast, annual inflation will reach\u00a03.8\u20134.8%\u00a0by\u00a0the\u00a0end\u00a0of\u00a0the\u00a0year amid the\u00a0easing of\u00a0monetary policy, and\u00a0will further on\u00a0stabilise close to\u00a04%. Moreover, we\u00a0expect a\u00a0reversal of\u00a0inflation trends in\u00a0the\u00a0middle of\u00a0the\u00a0year. Monthly inflation in\u00a0annualised terms will begin to\u00a0go\u00a0down, while annual inflation will still continue to\u00a0rise.<\/div>\n
As\u00a0to\u00a0the\u00a0balance of\u00a0payments<\/span>, we\u00a0expect that the\u00a0current account balance will decline to\u00a0negative values in\u00a02020\u00a0and 2021 (to\u00a0USD\u00a035\u00a0and 18\u00a0billion respectively). This will mainly result from the\u00a0slump in\u00a0exports caused by\u00a0the\u00a0reduction in\u00a0external demand and\u00a0in\u00a0export revenues, primarily from oil\u00a0sales.<\/div>\n
I\u00a0would like to\u00a0point that the\u00a0temporary switch to\u00a0a\u00a0current account deficit is\u00a0an\u00a0expected effect produced by\u00a0the\u00a0considerable oil\u00a0price downturn under the\u00a0influence of\u00a0the\u00a0fiscal rule. Receipts from fiscal rule-based foreign currency sales make it\u00a0possible to\u00a0support the\u00a0economy and\u00a0domestic consumption. In\u00a0this situation, imports are\u00a0contracting to\u00a0a\u00a0lower degree compared to\u00a0exports driven by\u00a0the\u00a0decline in\u00a0oil\u00a0prices. As\u00a0a\u00a0result, the\u00a0current account balance will drop to\u00a0negative values. In\u00a02022, when the\u00a0oil\u00a0price exceeds the\u00a0cut-off level, the\u00a0current account balance will return to\u00a0positive territory and\u00a0the\u00a0accumulation of\u00a0reserves will be\u00a0resumed via\u00a0fiscal rule-based foreign currency purchases.<\/div>\n
We\u00a0do\u00a0not\u00a0expect a\u00a0noticeable change in\u00a0the\u00a0private sector financial account balance over the\u00a0forecast horizon. According to\u00a0our\u00a0estimates, the\u00a0private sector financial account deficit will reduce from USD\u00a018\u00a0billion in\u00a02019 to\u00a0USD\u00a015\u00a0billion this year. This is\u00a0linked to\u00a0decline in\u00a0GDP, decrease in\u00a0economic revenues, as\u00a0well as\u00a0less possibilities for\u00a0borrowing in\u00a0foreign markets at\u00a0the\u00a0end\u00a0of\u00a0the\u00a0first quarter\u00a0\u2014 the\u00a0start of\u00a0the\u00a0second quarter amid intensified volatility and\u00a0uncertainty. Further ahead, as\u00a0global markets stabilise, the\u00a0potential for\u00a0external bollowings will recover and\u00a0this will pass through to\u00a0a\u00a0reduction in\u00a0the\u00a0private sector financial account deficit to\u00a0USD\u00a010\u00a0billion in\u00a02021-2022.<\/div>\n
This baseline scenario, without doubt, has\u00a0many\u00a0uncertainty factors<\/span>. They concern both the\u00a0duration of\u00a0the\u00a0restrictions in\u00a0Russia and\u00a0worldwide, and\u00a0the\u00a0pace of\u00a0recovery of\u00a0the\u00a0global and\u00a0Russian economies. Besides, new\u00a0spikes of\u00a0volatility may\u00a0occur in\u00a0global financial and\u00a0commodity markets. Therefore, in\u00a0our\u00a0discussions of\u00a0the\u00a0key\u00a0rate decision and\u00a0its\u00a0path, we\u00a0have a\u00a0proper regard to\u00a0the\u00a0objective of\u00a0sustaining financial stability.<\/div>\n
As\u00a0I\u00a0noted, the\u00a0baseline forecast incorporates only the\u00a0fiscal decisions already made by\u00a0the\u00a0Government. We\u00a0assume that further on\u00a0the\u00a0situation may\u00a0require additional decisions to\u00a0support the\u00a0economy. This will foster an\u00a0alleviation of\u00a0effects of\u00a0the\u00a0restrictions for\u00a0households and\u00a0businesses, accelerate the\u00a0return of\u00a0economic activity to\u00a0normal, and\u00a0also mitigate the\u00a0risks of\u00a0inflation deviation downwards from the\u00a0target over the\u00a0next quarters. In\u00a0the\u00a0course of\u00a0our\u00a0key\u00a0rate discussions, we\u00a0considered model estimates of\u00a0the\u00a0influence of\u00a0such additional fiscal measures on\u00a0GDP, inflation and\u00a0the\u00a0monetary policy path.<\/div>\n
We\u00a0will certainly consider possible developments in\u00a0fiscal policy, in\u00a0the\u00a0Russian and\u00a0global economies in\u00a0the\u00a0course of\u00a0further adjustments of\u00a0our\u00a0baseline scenario. Nonetheless, our\u00a0current analysis suggests that virtually all\u00a0possible scenario variants allow for\u00a0monetary policy easing, including amid a\u00a0certain additional expansion of\u00a0fiscal measures designed to\u00a0support the\u00a0economy.<\/div>\n
The\u00a0Board of\u00a0Directors\u00a0proceeds from the\u00a0existing potential for\u00a0cutting the\u00a0key\u00a0rate<\/span>and\u00a0discussed possible options at\u00a0the\u00a0current and\u00a0next meetings. The\u00a0discussion concluded that given such extraordinary developments, it\u00a0may\u00a0not\u00a0prove sufficient to\u00a0adjust our\u00a0policy by\u00a0employing the\u00a0small-step method we\u00a0used. To\u00a0return inflation to\u00a0the\u00a0target and\u00a0stabilise the\u00a0situation in\u00a0the\u00a0economy, we\u00a0may\u00a0need to\u00a0implement more decisive measures. At\u00a0our\u00a0today’s meeting we\u00a0have decided to\u00a0cut\u00a0the\u00a0key\u00a0rate by\u00a050\u00a0bp to\u00a05.50% per\u00a0annum.<\/span>\u00a0We\u00a0continue to\u00a0see\u00a0the\u00a0potential for\u00a0the\u00a0further easing of\u00a0monetary policy at\u00a0our\u00a0next meetings.<\/div>\n
I\u00a0would also like to\u00a0note that, given the\u00a0key\u00a0rate change, we\u00a0have decided to\u00a0cut\u00a0from 4.0% to\u00a03.5% per\u00a0annum the\u00a0interest rate under the\u00a0new\u00a0Bank of\u00a0Russia’s SME\u00a0lending support facility introduced several weeks\u00a0ago. We\u00a0believe this will help to\u00a0additionally improve the\u00a0affordability of\u00a0loans for\u00a0small and\u00a0medium-sized enterprises, which were affected the\u00a0most by\u00a0hardships.<\/div>\n
And\u00a0a\u00a0few\u00a0words in\u00a0conclusion. The\u00a0current situation specifically requires timely and\u00a0even forward-looking decisions so\u00a0that we\u00a0are\u00a0able not\u00a0only to\u00a0curb negative trends in\u00a0the\u00a0economy, but\u00a0also to\u00a0set\u00a0grounds for\u00a0a\u00a0faster normalisation of\u00a0the\u00a0economic situation after the\u00a0withdrawal of\u00a0the\u00a0restrictions. This will influence both inflation dynamics and\u00a0the\u00a0economy recovery path. Therefore, the\u00a0Bank of\u00a0Russia is\u00a0monitoring the\u00a0effects of\u00a0its\u00a0earlier decisions promptly and\u00a0on\u00a0an\u00a0ongoing basis, and\u00a0stands ready to\u00a0take further steps, both in\u00a0the\u00a0monetary policy sphere and\u00a0in\u00a0the\u00a0areas of\u00a0its\u00a0activity.”<\/div>\n

 <\/p>\n<\/div>\n

\u00a0 \u00a0<\/span> www.CentralBankNews.info<\/a><\/span><\/div>\n

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

By CentralBankNews.info \u00a0 Russia’s central bank cut its rate for the second time this year, as widely expected, as it switched to an accommodative monetary policy stance and said it was ready to cut the rate further if the situation develops as it expects. \u00a0 \u00a0 \u00a0The Bank of Russia cut its key rate by […]<\/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-169330","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/169330","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=169330"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/169330\/revisions"}],"predecessor-version":[{"id":169332,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/169330\/revisions\/169332"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=169330"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=169330"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=169330"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}