Bank of Russia keeps key rate at 7.75%

Bank of Russia keeps key rate at 7.75%

The Bank of Russia Board of Directors decided to keep the key rate at 7.75% per annum, the regulator said in a press release. 

When grounding its decision the regulator noted that in January 2019, annual inflation held at the lower bound of the Bank of Russia expectations, while the contribution of the VAT increase to annual consumer price growth in January was moderate.

The effect of the VAT increase on inflation can be fully assessed no sooner than this April, the regulator said.

"In its key rate decision-making, the Bank of Russia will determine if the increases of the key rate in September and December 2018 were sufficient to bring annual inflation back to the target of 4% in 2020, taking into account inflation and economic performance against the forecast, as well as the risks associated with external conditions and financial markets’ response to them," the regulator said.

The next meeting of the Board of Directors of the Central Bank, at which the key rate will be discussed, will be held on March 22, 2019. 

The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, speaking to Vestnik Kavkaza, noted that the key rate's stability, maintained by the Central Bank, allows the regulator to face as little criticism as possible.

"The Russian Central Bank's documents stipulate that they expect inflation to rise to 5-5.5% in the first half of this year, hoping that later inflation will decline. Regulatory experts believe that inflationary growth is a temporary phenomenon associated with VAT and some other temporary factors. In general, the Central Bank believes that they control the situation," the expert noted.

"At the same time, according to the Russian Central Bank, today there is no need to give any additional signals, for example, to raise the rate in order to curb inflation, since all the existing factors are temporary, the market will correct this situation itself," he said.

According to Alexander Abramov, the Bank of Russia could lower the rate if statistical inflation declines again. However, the expert does not believe that it is possible in the coming months, since inflationary behavior is very inert in general, and so far there are no factors that could unfold the population’s expectations.

Head of the State Duma’s Committee for Financial Markets Anatoly Aksakov, described the Central Bank's decision as expected. "On the one hand, since the beginning of the year there has been a surge in inflation. But now the situation has stabilized, and these one-off factors are already exhausting themselves. Based on this, I think the Central Bank made the right decision," he said.

"In addition, taking into account the macroeconomic situation, it would be wrong to give negative signals to the market,” Anatoly Aksakov noted.

He added that a key rate cut should be expected closer to the end of the year. "But in principle, the key rate will rather decline than increase. I think that it is quite possible to it will be cut in the second half of this year," the head of the State Duma’s Committee for Financial Markets concluded.