Peak of inflation over in Russia
Russia's annual inflation was 5.3% in March, but it has started to decline in April due to a number of temporary factors restraining price hikes, the Russian Central Bank said in a report today.
“Annual inflation has passed its peak at a lower than expected level thanks to the strengthening factors that curb the price growth temporarily – the firming ruble and falling diesel fuel prices,” the central bank said. "The VAT effect on the consumer price growth has ceased to be traced in statistics, pointing, in part, to the absence of significant indirect factors."
According to the report, annual inflation in Russia is slowing and will reach the central bank’s 4% target in the first quarter of 2020 even though inflationary expectations remain high.
The report also said that inflation measured in monthly and seasonally-adjusted terms has already slowed to be in line with the central bank’s target.
Economic growth is now expected to pick up starting in the second quarter of 2019, the central bank said. "Economic growth acceleration prospects have improved: starting from the second quarter the growth rate will stand at about 0.4% on the quarter in seasonally adjusted terms, and will reach its potential," the department said.
Former deputy chairmen of the Russian Central Bank Konstantin Korischenko and Alexander Khandruev, speaking to Vestnik Kavkaza, agreed that the Central Bank's current directorship, when reaching the 4% inflation target, will not take any radical steps in monetary policy.
"It seems to me that the Central Bank will keep a policy of restrained optimism. If you look at the data of the last 4-5 years, the Central Bank has always the same policy: if there are any risks, the key rate increases, if the situation calms down, they start to cut it, but slowly. If we talk about any long-term level, then I predict a rate of about 6% with inflation of 4%,” Konstantin Korishchenko expects.
Alexander Khandruyev, in turn, said that in the current conditions it was impossible for the Central Bank to implement more ambitious plans. "The Bank of Russia plans to switch from a neutral key rate to a real one, which is estimated at 2-3%. At the same time, on the one hand, according to the Central Bank’s estimates, inflation will be 4% by 2020, but inflation expectations are higher, about 7-8%. If in such conditions they reduce the rate, the likelihood of ruble depreciation will increase, which will give impetus to the growth of inflation expectations and inflation itself, which the Central Bank cannot afford," he explained.
"Therefore, I think the Bank of Russia may raise the issue of cutting the rate by 0.25% at the nearest board of directors, but no more. We don't know the decision yet. Although we can already say that the tightening of monetary policy is postponed in the existing conditions, the transition to a neutral policy is still an open question," Alexander Khandruyev concluded.