Central Bank of Russia decides not to change key interest rate

Central Bank of Russia decides not to change key interest rate

The Board of Directors of the Russian Central Bank decided to keep its key interest rate at 11%, based on the results of its meeting today.

The regulator noted the positive processes of decline in inflation and inflationary expectations, as well as changes in the economy, approximating its entry into the phase of recovery growth. At the same time, inflationary risks are still high today, the press release of the Central Bank says.

The Bank of Russia points out that these risks are related primarily to the slow decline in inflation expectations, the uncertainty of the state budget parameters and the ambiguity of the observed changes in the dynamics of nominal wages.

According to the forecast of the Central Bank, taking into consideration the key rate decision, the annual inflation will stand at about 5% in April 2017 and will reach the 4% target in late 2017.

If a decline in inflationary risks allows to have a greater certainty that inflation target will be reached, the Bank of Russia will resume gradually lowering the key rate at one of the coming board meetings, the press release says.

The next meeting of the Board of Directors of the Russian Central Bank in 2016 is scheduled for June 10.

A professor of the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, speaking with a correspondent of Vestnik Kavkaza, explained why the majority was surprised by the decision of the Central Bank. "I thought that the key rate will be significantly reduced. But I did not realize that, as stated by the Central Bank, the Finance Ministry will be spending the reserve fund to cover the deficit to provide the refinancing of the banking system. I thought that the Finance Ministry hasn't spent the reserve funds during the last four months," he said.

According to the expert, it depends on two factors whether the rate will be reduced if in the future. On the one hand, it may happen when a signal is received that the positive dynamics of oil prices became more confident. "But most importantly that the Reserve Fund should be pretty close to exhaustion, which will make it impossible for the Central Bank to delay further rate cuts," a professor of the department of the stock market and investments at the Higher School of Economics pointed out.

"I think that it may happen at the next meeting. This was also stated in the press release of the Central Bank," Alexander Abramov concluded.

The head of the department of Economics and Finance at the Faculty of Economics and Social Sciences of RANEPA, doctor of economic sciences, Professor Alla Dvoretskaya, on the contrary, said that it wasn't difficult to predict a 'wait and see' attitude of the regulator.

"A decrease in inflation, which is now being observed, could be the reason to reduce the key interest rate, but this trend was not fixed. Perhaps, in the near future the inflation will grow for various reasons," she noted.

According to the expert, the Central Bank also took foreign exchange risks into account. "The Bank of Russia understands that if it leaves the status quo, it will maintain macroeconomic equilibrium in the foreign exchange market. The regulator does not change the situation in fear of inflation, which always leads to the devaluation," Dvoretskaya explained.

The expert said that the Central Bank intends to wait: if there is a long-term downward trend in inflation, the Central Bank will gradually lower the rate. "The main objective of the Bank of Russia is to ensure price stability, not to provoke inflation, leaving the problem of economic growth to the ministry of economic development," the head of the department of Economics and Finance at the Faculty of Economics and Social Sciences of RANEPA noted.

It is possible that the key rate will be lowered in the fall. "If they raise rates, it will lead to the strengthening of the ruble, and neither the Finance Ministry, nor the Ministry of Economy or the Central Bank does not want to strengthen the ruble now, because the excessive strengthening of the ruble inhibits import substitution and economic growth," Alla Dvoretskaya summarized.

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