Russia's Central Bank to cut key rate to 5%?
Assistant to the Russian president Andrei Belousov believes that potential for further easing of the Russian Central Bank's monetary policy after several consecutive cuts in the key rate remains quite high. According to him, it can be lowered to a level of 5%.
However, Belousov warned that further steps in this direction require improving the coordination mechanism between the regulator and the government.
According to Belousov, there is "potential for further cuts," since "inflation is decreasing faster than the key rate," and "the annual inflation rate is already 3.6%, actually 3.5%." He expects that "it will reach 3.3-3.4% at the end of the year," and 3% - at the beginning of 2020.
"If you cut 1-1.5% due to an increase in VAT," then it’s clear that Russia's "inflation is already on the verge of deflation," the presidential aide pointed out. With such inflation, "the market, demand are suppressed," Belousov explained. The Bank of Russia "understands it," head of the Russian Central Bank Elvira Nabiullina "indicates it, they accelerated the reduction of the key rate," he recalled.
Earlier in November, Elvira Nabiullina said that the Russian Central Bank sees potential for easing its monetary policy, but will not make key rate decisions automatically, but will assess the data on the state of the Russian and global economies and pro-inflation risks.
The advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house, economist Sergey Hestanov, speaking to Vestnik Kavkaza, noted that the Central Bank will go to 5% very carefully. "The Central Bank will make small changes and monitor the results closely. Unfortunately, inflation is influenced not only by economic factors, but also by behavioral factors that can not be predicted very well. That is why the tactics of small steps are normal practice, and they will continue until inflation comes close to the target level of 4%," he said.
At the same time, even a key rate of 5% will have a minimal impact on the economy. "In general, the rates of commercial banks are weakly related to the Central Bank refinancing rate," the advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house pointed out.
"As for loans, an important component that greatly affects their value is the loan premium. And this premium does not depend on the actions of the Central Bank. Yes, a cut in the Central Bank rate will affect the crediting rate to some extent, but quite weak," Sergey Hestanov warned.
"In practice, most people will not notice a reduction in the key rate to 5%," he concluded.