{"id":172424,"date":"2020-06-19T11:45:46","date_gmt":"2020-06-19T15:45:46","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=172424"},"modified":"2020-06-19T11:30:09","modified_gmt":"2020-06-19T15:30:09","slug":"russia-cuts-rate-8th-time-and-will-consider-further-easing","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/06\/russia-cuts-rate-8th-time-and-will-consider-further-easing\/","title":{"rendered":"Russia cuts rate 8th time and will consider further easing"},"content":{"rendered":"
June 19, 2020<\/div>
\r\n<\/div><\/div>

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

Russia’s central bank cut its policy rate for the third time this year and for the 8th time in the last 12 months, saying the downward pressures on inflation are higher than expected and further rate cuts will be considered in coming policy meetings.<\/p>\n

\u00a0 \u00a0 \u00a0The Bank of Russia cut its key rate by another 100 basis points to 4.50 percent and has now cut it by 175 basis points this year following cuts in February and April.<\/span><\/div>\n
\u00a0 \u00a0 \u00a0Since June 2019, when the central bank began to reverse two rate hikes in the second half of 2018,\u00a0<\/span>the rate has been cut eight times by 325 points.<\/div>\n
\u00a0 \u00a0 \u00a0Today’s decision\u00a0<\/span>was well-telegraphed by Governor Elvira Nabiullina who said on June 5 that a 100 basis-point rate cut was among the options that would be considered as there was significant room for monetary policy easing due to fading inflationary pressure from the measures taken by governments worldwide to curb the spread of the Covid-19 pandemic.<\/div>\n
\u00a0 \u00a0 \u00a0“Disinflationary factors have been more profound that expected due to a longer duration of restrictive measures in Russia and across the world,” the central bank said, adding the effect of short-term pro-inflationary factors have largely been exhausted, inflation expectations have eased and financial stability risks in global markets have declined.<\/div>\n
\u00a0 \u00a0 \u00a0 “In these circumstances, there’s a risk that in 2021 inflation might significantly deviate downwards from the 4.0% target,” the bank said, adding its rate cut was aimed at limiting this risk.<\/div>\n
\u00a0 \u00a0 \u00a0Russia’s inflation rate eased to 3.0 percent in May from 3.1 percent in April as the upward pressure on prices from a lower ruble and higher demand for certain goods ahead of quarantines and a disruption to supply chains, begin to fade.<\/div>\n
\u00a0 \u00a0 \u00a0As of June 15, inflation rose back to 3.1 percent, the central bank said, adding inflation in coming months will be contained by the rise in the ruble in May and early June on the back of more stable global financial markets and rising oil prices.<\/div>\n
\u00a0 \u00a0 \u00a0But at the same time, inflation will also rise this year due to the low base effect of 2019.<\/div>\n
\u00a0 \u00a0 \u00a0In April the central bank forecast inflation would average 3.1 to 3.9 percent this year, down from 2019’s 4.5 percent.<\/div>\n
\u00a0 \u00a0 \u00a0The current risks of disinflation are mainly due to the uncertainty over the virus and the scale of measures to fight it, and the impact of these measures on economic activity and how fast the global and Russian economy recover.<\/div>\n
\u00a0 \u00a0 \u00a0“If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings,” the bank said.<\/div>\n
\u00a0 \u00a0 \u00a0Russia’s ruble tumbled 25 percent from Jan. 12 to March 19 but since then it has rebounded 17 percent and was trading at 69.3 to the U.S. dollar today, down only 10.5 percent this year.<\/div>\n
\u00a0 \u00a0 \u00a0Some of Russia’s measures to contain the spread of Covid-19 remain in place and together with the considerable drop in external demand this is putting longer-than-expected pressure on economic activity and recent surveys of business reflect cautious sentiment.<\/div>\n
\u00a0 \u00a0 \u00a0“The contraction of GDP in the second quarter could prove more sizable than expected,” the central banks said, confirming its forecast for Russia’s economy to contract 4-6 percent this year as compared with growth of 1.3 percent in 2019.<\/div>\n
\u00a0 \u00a0 \u00a0 In the first quarter of this year Russia’s GDP grew an annual 1.6 percent, down from 2.1 percent in the previous quarter.<\/div>\n

<\/a><\/p>\n

<\/div>\n
\u00a0 \u00a0 \u00a0The Bank of Russia released the following press release:<\/div>\n
<\/div>\n
<\/div>\n
“On\u00a019 June 2020, the\u00a0Bank of\u00a0Russia decided to\u00a0cut\u00a0the\u00a0key\u00a0rate<\/a>\u00a0by\u00a0100\u00a0bp to\u00a04.50% per\u00a0annum. Disinflationary factors have been more profound than expected due\u00a0to\u00a0a\u00a0longer duration of\u00a0restrictive measures in\u00a0Russia and\u00a0across the\u00a0world. The\u00a0effect of\u00a0short-term pro-inflationary factors has\u00a0been largely exhausted. Financial stability risks related to\u00a0the\u00a0situation in\u00a0global financial markets have declined. Household and\u00a0business inflation expectations have abated. In\u00a0these circumstances, there is\u00a0a\u00a0risk that in\u00a02021 inflation might significantly deviate downwards from the\u00a04% target. The\u00a0key\u00a0rate decision taken by\u00a0the\u00a0Bank of\u00a0Russia is\u00a0aimed at\u00a0limiting this risk and\u00a0maintaining inflation close to\u00a04%.<\/span><\/div>\n
If\u00a0the\u00a0situation develops in\u00a0line with the\u00a0baseline forecast, the\u00a0Bank of\u00a0Russia will consider the\u00a0necessity 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\u00a0in\u00a0the\u00a0first half of\u00a02021 will be\u00a0largely influenced by\u00a0a\u00a0steep decline in\u00a0domestic and\u00a0external demand occurred in\u00a0the\u00a0second quarter. The\u00a0disinflationary effect of\u00a0weak demand has\u00a0strengthened due\u00a0to\u00a0both current and\u00a0deferred economic effect of\u00a0restrictions. Household and\u00a0business inflation expectations have abated after a\u00a0short-lived growth in\u00a0March-April.<\/div>\n
The\u00a0influence of\u00a0the\u00a0weaker ruble and\u00a0the\u00a0episodes of\u00a0increased demand for\u00a0certain product groups in\u00a0March has\u00a0been exhausted. According to\u00a0preliminary data as\u00a0of\u00a015\u00a0June, annual consumer price growth rate was\u00a0around 3.1%. In\u00a0the\u00a0coming months, consumer price dynamics will be\u00a0additionally contained by\u00a0the\u00a0strengthening of\u00a0the\u00a0ruble observed in\u00a0May\u00a0\u2014 early June on\u00a0the\u00a0back of\u00a0stabilising global financial markets and\u00a0growing oil\u00a0prices. Current monthly annualised inflation will continue to\u00a0decline. At\u00a0the\u00a0same time, annual inflation rate will rise in\u00a02020 owing to\u00a0the\u00a0low\u00a0base effect of\u00a02019.<\/div>\n
In\u00a0the\u00a0context of\u00a0prevailing disinflationary factors, there is\u00a0a\u00a0risk that in\u00a02021 inflation might significantly deviate downwards from the\u00a04% target. The\u00a0key\u00a0rate decision taken by\u00a0the\u00a0Bank of\u00a0Russia is\u00a0aimed at\u00a0limiting this risk and\u00a0maintaining inflation close to\u00a04%.<\/div>\n
Monetary conditions<\/span>\u00a0slightly eased in\u00a0May-June after some tightening in\u00a0March-April. OFZ\u00a0and\u00a0corporate bond yields dropped below the\u00a0levels observed at\u00a0the\u00a0beginning of\u00a0the\u00a0year, including owing to\u00a0the\u00a0current monetary policy stance. The\u00a0country risk premium went down, largely owing to\u00a0an\u00a0improved situation in\u00a0global financial and\u00a0commodity markets. Interest rates on\u00a0deposit and\u00a0housing mortgage loans decreased. At\u00a0the\u00a0same time, increased credit risks in\u00a0the\u00a0real sector push interest rates up\u00a0and\u00a0lead to\u00a0a\u00a0tightening of\u00a0non-price lending conditions in\u00a0certain market segments. The\u00a0Bank of\u00a0Russia\u2019s decisions to\u00a0cut\u00a0the\u00a0key\u00a0rate, along with a\u00a0notable drop in\u00a0OFZ yields, pave the\u00a0way\u00a0for\u00a0reduction in\u00a0interest rates in\u00a0other financial market segments in\u00a0the\u00a0future. Coupled with the\u00a0Government and\u00a0other Bank of\u00a0Russia\u2019s measures, this will support lending, including in\u00a0the\u00a0most vulnerable sectors of\u00a0the\u00a0economy.<\/div>\n
Economic activity.\u00a0<\/span>Some of\u00a0the\u00a0previously enforced restrictive measures remain in\u00a0place. Alongside a\u00a0considerable drop in\u00a0external demand, the\u00a0negative pressure this is\u00a0exerting on\u00a0economic activity is\u00a0more extended than the\u00a0Bank of\u00a0Russia assumed in\u00a0April. There was\u00a0a\u00a0significant drop in\u00a0business activity in\u00a0the\u00a0services sector and\u00a0manufacturing; a\u00a0sizeable contraction was\u00a0reported in\u00a0the\u00a0numbers of\u00a0new\u00a0orders in\u00a0external and\u00a0domestic markets; investment declined. Unemployment went up\u00a0and\u00a0incomes shrank. There was\u00a0a\u00a0considerable drop in\u00a0retail sales. The\u00a0phased lifting of\u00a0restrictions between\u00a0May and\u00a0June is\u00a0helping consumption-oriented sectors gradually recover. However, recent business surveys invariably reflect cautious sentiment.<\/div>\n
The\u00a0contraction of\u00a0GDP in\u00a0the\u00a0second quarter could prove more sizeable than expected. At\u00a0the\u00a0same time, the\u00a0Russian economy is\u00a0gaining support from the\u00a0Russian Government and\u00a0the\u00a0Bank of\u00a0Russia\u2019s additional measures aimed at\u00a0the\u00a0mitigation of\u00a0economic effects of\u00a0the\u00a0coronavirus pandemic. In\u00a0these conditions, GDP\u00a0will decrease by\u00a04-6%\u00a0in\u00a02020. Recovery growth of\u00a0the\u00a0Russian economy will continue in\u00a02021-2022.<\/div>\n
Inflation risks.\u00a0<\/span>Disinflationary risks prevail over pro-inflationary ones. Under the\u00a0baseline scenario, disinflationary risks are\u00a0chiefly connected with uncertainty as\u00a0to\u00a0further developments in\u00a0the\u00a0coronavirus pandemic situation in\u00a0Russia and\u00a0globally, the\u00a0scale of\u00a0possible measures to\u00a0fight it\u00a0and\u00a0their impact on\u00a0economic activity, as\u00a0well as\u00a0the\u00a0speed at\u00a0which both the\u00a0global and\u00a0Russian economies will recover as\u00a0restrictive measures are\u00a0mitigated.<\/div>\n
The\u00a0short-term pro-inflationary risks connected with a\u00a0potential sizeable pass-through into prices of\u00a0the\u00a0recent ruble weakening as\u00a0well as\u00a0with the\u00a0episodes of\u00a0increased demand for\u00a0several product groups have all\u00a0been exhausted. However, disrupted supply chains as\u00a0a\u00a0result of\u00a0the\u00a0curbs and\u00a0the\u00a0additional costs of\u00a0protecting personnel and\u00a0consumers from the\u00a0coronavirus spread could exert upward pressure on\u00a0prices. The\u00a0periods of\u00a0strengthened volatility in\u00a0global markets can\u00a0be\u00a0reflected in\u00a0exchange rate and\u00a0inflation expectations.<\/div>\n
Medium-term inflation dynamics will be\u00a0significantly impacted by\u00a0fiscal policy parameters, in\u00a0particular, the\u00a0scale and\u00a0efficiency of\u00a0the\u00a0Government\u2019s measures towards mitigating the\u00a0consequences of\u00a0the\u00a0coronavirus pandemic and\u00a0overcoming structural constraints, as\u00a0well as\u00a0the\u00a0speed of\u00a0the\u00a02021-2022\u00a0budget consolidation.<\/div>\n
If\u00a0the\u00a0situation develops in\u00a0line with the\u00a0baseline forecast, the\u00a0Bank of\u00a0Russia will consider the\u00a0necessity 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
\n

The\u00a0Bank of\u00a0Russia will hold its\u00a0next key\u00a0rate review meeting on\u00a024\u00a0July 2020<\/a>. The\u00a0press release on\u00a0the\u00a0Bank of\u00a0Russia decision is\u00a0to\u00a0be\u00a0published 13:30 Moscow time.”<\/p>\n

www.CentralBankNews.info<\/a><\/p>\n<\/div>\n

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

By CentralBankNews.info Russia’s central bank cut its policy rate for the third time this year and for the 8th time in the last 12 months, saying the downward pressures on inflation are higher than expected and further rate cuts will be considered in coming policy meetings. \u00a0 \u00a0 \u00a0The Bank of Russia cut its key […]<\/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-172424","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/172424","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=172424"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/172424\/revisions"}],"predecessor-version":[{"id":172428,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/172424\/revisions\/172428"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=172424"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=172424"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=172424"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}