CB believed in the future of the Russian economy: the regulator has lowered its key interest rate

© RIA Novosti / Natalia to Seliverstova in photobacteria the building of the Central Bank of Russia on Neglinnaya street in Moscow. Archival photoCB believed in the future of the Russian economy: the regulator has lowered its key interest rate© RIA Novosti / Natalia to Seliverstova the image Bank

The Bank of Russia on Friday gave the market a serious surprise, reducing the benchmark interest rate by 0.5 percentage points to 7.75%, while most experts had expected a decline of only 0.25 percentage points.

The head of the Central Bank Elvira Nabiullina explained the decision by saying that the regulator has changed the view of the situation in the economy in 2018. The regulator has signaled that next year could take a few pauses in the reduction of the key rate.

«I believe that the actions of the Central Bank affected by a number of factors – changes in real GDP, which had deteriorated over recent months, and there are risks continue such statements. Also inflation at a low level – far below the guideline of the Central Bank. Plus external background relatively favourable. So the Central Bank decision reasonable both from the point of view of macroeconomic and external economic factors», — said the chief economist of the Eurasian development Bank Yaroslav Lissovolik, who originally predicted a decline of 0.5 percentage points.

A generous gift

This «big step» of the Central Bank, said Anton Tarbah of «Expert RA», the situation in the banking market.

«From the point of view of monetary policy under uncertainty and inflation – there are no questions, it was possible to reduce. Moreover, with high probability a high bounty due to the situation in the banking market. If you look at the history of almost all crises, when problems in the banking market, the rate decrease more or out of turn,» — emphasizes Tarbah.

During the press conference, Nabiullina said that the Bank of Russia expects some slowdown in the Russian economy in 2019 to 1-1,5% after growth in 2018 by 1.5-2%. Earlier Friday, the head of the regulator noted that the Bank of Russia, considering the extension of the agreement to limit production of OPEC oil+ increased the forecast of growth of Russia’s GDP in 2018 compared to the baseline scenario of 1.5-2%. By the end of 2017, the Bank of Russia predicts growth of the Russian economy in the range of 1.7-2.2 percent, but closer to the lower boundary.

Inflation in annual expression has fallen to 2.5% but the Central Bank customarily attributed this to the time factor, indicating that the risk of inflation deviation of inflation, up from the forecast continue to prevail in the medium term. At the same time, the Central Bank has lowered the forecast of inflation by the end of 2017 to less than 3% with about 3%, but maintained its forecast that by 2018, the inflation closer to 4%.

Despite the fact that many factors speak in favor of lowering by 0.5 percentage points in order to support the Russian economy, the previous behavior of the Central Bank and external background indicated the likelihood of a more mild decline, experts say.

«From the point of view of stability policy of the Central Bank, the market expected a decline of 25 basis points, and consensus. And here 50. It is clear that within the permissible – if not lowered or lowered to 75, then that would be amazing. But can it be done less drastically,» — said Tarbah.

«A very surprising decision, given the rhetoric that the Central Bank announced that the current risks from external and internal processes, the nature of the inflation slowing down. Central Bank has completely ignored the threat of a possible tightening of sanctions in February. It looks a bit strange, because in previous periods 2015-2016, the Central Bank acted very cautiously, when on the horizon two months there were some significant events and risks,» — says Evgeny Koshelev of ROSBANK.

Nabiullina at the press conference mentioned that the Central Bank takes into account the possible influence of external factors, including geopolitical, but in the baseline forecast, the regulator comes from the immutability of Western sanctions.

Tarbah of «Expert RA» also notes that the tone of the statement is clearly «winning» character and reminds that the Central Bank can be proud this year. «The tone of the statement victory. We had a left – wing bias- won, was inflation – have won,» he said.

«Emphasis was placed on the fact that the inflation target has been achieved and said about the factors that contributed to this,» agrees with the colleague analyst ACRA Victoria Baranova.

Future maneuvers

Interviewed analysts agree that by making a bold move on New year’s eve, the Bank of Russia for the next meetings, maybe several times to leave the rate unchanged.

«The policy of lowering the interest rate confirmed for the following year, but sent a signal that such a strategy will be implemented gradually. It is possible that in the next year, we may see periodic pauses by the Central Bank as soon as evaluated by external risks and economic dynamics», — said Lissovolik.

However, he is confident that the medium-term benchmarks for the rate has not changed. «But CB saved maneuvers, it can slow down rate reduction if it would be tougher external environment, risks, whether the decline in oil prices or sanctions factors,» he said.

«The Central Bank has reduced the rate in advance. On 9 February we do not expect a rate cut. Probably will take a break. It is important that the statement — the transition to a neutral monetary policy. So now the Central Bank will cut the rate every time, and through time,» said Tarbah.

Ivan Tchakarov of Citi believes that the Central Bank’s decision will create uncertainty in the market. «We see far less clear how rate will reduce in the future. This will undoubtedly lead to excessive growth of the instability of the market during the next year,» he said.

Source

Be the first to comment on "CB believed in the future of the Russian economy: the regulator has lowered its key interest rate"

Leave a comment

Your email address will not be published.


*