Central Bank of Russia keeps key interest rate at 11%

Central Bank of Russia keeps key interest rate at 11%

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 Bank decided not to change the key interest rate taking into consideration the significant inflationary risks which still remain, adding that no significant change in the balance of inflationary risks and risks of the cooling of the economy have happened. 

The next meeting of the Board of Directors of the Russian Central Bank in 2015 is scheduled for December 11.

A leading researcher at the Institute of Applied Economic Research of the Russian Presidential Academy of National Economics and Public Administration, Alexander Abramov, told Vestnik Kavkaza that "in the first place, it was due to the fact that inflation is not falling as fast as planned. Secondly, it seems to me that the Central Bank was afraid that too strong rate cuts may affect the volatility of the ruble at the end of the year. And, thirdly, if we simply compare Russia with other countries implementing inflation targeting, for example with Brazil, no country has such a large negative gap between the inflation rate and the core rate. In other words, inflation is at 15%, at the end of the year it will be probably 12%, and the rate 11%. I think that in this situation it is dangerous to lower the key rate even further, we need to wait to lower inflation," he said.

"Since the second half of December, and mostly at the beginning of next year, inflation will fall sharply. Now we have inflation of 15% and at the end of the year we will get 12-13%, because at the end of December 2014 prices increased dramatically. If nothing catastrophic happens, the inflation rate will be 5-7%. In such circumstances, the Central Bank will be able to reduce the rate. But now we just need the world to see that our inflation has significantly dropped," Alexander Abramov summed up.

The professor of the RANEPA Chair of Finances, Money Circulation and Credit, Yuri Yudenkov, in his turn, expressed the view that such a decision was due to uncertainty in the economy. "The economy continues to stagnate, the production does not grow, so the Central Bank considered it unnecessary to change the terms of lending. According to the Board of Directors of the Russian Central Bank, if they change the key rate or some other parameters, the market will plunge into speculation again," he noted.

According to the economist, the key rate will remain at the current level until the spring. "As soon as there will be at least a small industrial growth, it is likely that the Central Bank will do it. But this is interconnected, the bank doesn't lower its key rate – there is no growth. And if there is no growth, it does not decrease the rate," Yuri Yudenkov concluded.