Russian Central Bank leaves its key interest rate unchanged

Russian Central Bank leaves its key interest rate unchanged

The Board of Directors of the Russian Central Bank left its benchmark interest rate unchanged at 11%. "The Board of Directors of the Russian Central Bank on December 11th 2015 decided to keep the key rate level at 11% per annum, taking into account growing inflation risks and risks of economic cooling," the press release says.

It should be noted that this decision was made for the third time in a row. As inflation slows down, the Bank of Russia will continue with a downward revision of its key rate at one of the forthcoming meetings.

According to the Bank of Russia, the slowdown in inflation in Russia in November-early December was less than expected. The favorable situation in the agricultural market, gradual exhaustion of the effect from the weakening of the ruble and weak consumer demand against the background of low growth of the nominal income of the population contributed to the slower growth in consumer prices, the Central Bank said. "However, the slowdown in consumer prices occurred more slowly than expected. In addition, the inflationary expectations of the population grew in November," the release says.

The Central Bank believes that the deterioration of the external economic situation against the backdrop of the decline in oil prices and slowdown of the Chinese economy is a source of inflation risks.

A professor of the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, told Vestnik Kavkaza that the Central Bank over the past few months has had no reason to reduce the key rate. "Inflation is still high at 15%. Of course, the Central Bank fears that a very sharp rate cut would cause an easing of monetary policy and thus it may accelerate the fall of the ruble. There was no point in raising the key rate and no one would allow the CB to do it," the expert explained.

Abramov expects that the rate of 11% will not stay long. "I think that the Central Bank will probably reduce the rate in January, because the inflation rate will be lower," the professor of the department of the stock market and investments at the Higher School of Economics noted.

The professor of the RANEPA Chair of Finances, Money Circulation and Credit, Yuri Yudenkov, in his turn, noted that the Central Bank also has no possibility of changing the key interest rate. "If it raises it, it will raise inflation, and if it cuts it, then everyone will rush to the market to buy foreign currency. Moreover, even if it cuts it, there will still be no increase in lending," the expert said.

"In fact, the exchange rate is dependent not only on the efforts of the Central Bank, but on the oil prices. No changes would lead to anything good. Nobody expected that any changes could happen," he stressed, adding that it is unlikely that the key rate will be changed before summer.

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