© RIA Novosti / Natalia to Seliverstova in photobacteria the Bank of Russia. Archive photo
© RIA Novosti / Natalia to Seliverstova the image Bank
The Bank of Russia on Friday is expected to cut its key rate by 0.25 percentage points to 7.5% per annum, against the risks of a slowing economy and persistently low inflation. In this case the regulator has given a new signal on the prospects of the monetary policy, allowing the completion of the transition from moderately rigid to a neutral monetary policy in 2018.
Polled by RIA Novosti analysts found the fact of a rate cut in the current circumstances is absolutely justified. Step 25 basis points they regarded as balanced, but too careful. Perhaps the main reason for this decision was the growth of inflationary expectations of the population and complex market conditions, suggested by some economists.
«A balanced solution that takes into account, on the one hand, the lack of dynamics that we see from the real sector and slowdown of the growth rate, and on the other hand, inflation significantly below the target of the Central Bank», — said, in particular, the EDB chief economist Yaroslav Lissovolik.
We will remind, that annual inflation in Russia in January slowed down to 2.2% from 2.5% in December.
According to Lisovolik, the reduction of the key rate in this context is reasonable and takes into account external risks that emerged recently in the global financial markets, including the fall in oil prices.
Changed the tone
The expert group research and forecasting ACRES Dmitry Kulikov noted that the statement of the Central Bank becomes more informative from meeting to meeting, but his cautious tone as a whole.
«We are already very close to the levels of short-term rates, which the Bank of Russia had previously stated as equilibrium (6-7%). The signal about the transition to a neutral policy is a reminder of this level and a guideline for long-term rates. In a sense this can be perceived even as a verbal intervention aimed at easing the conditions through the influence on expectations», — says the analyst.
Director of the center for macroeconomic forecasting of the Bank Natalia Shilova draws attention to the fact that in December 2017, the regulator saw the probability of a rate cut only by a certain amount in the first half of 2018.
«Now the tone has changed – he thinks the likely achievement neutral level for the key rate in late 2018. While the Central Bank continues to note that in the medium term — 2019-2020 — the risks of exceeding the inflation target is dominated, that should not contribute to decisions about more aggressive rate cuts. It cannot be excluded that in March the decision wording again will be smoothed», — the analyst of the Bank.
However, she expects that interest rates on long term deposits with banks will decline less sharply, as a significant part of the reduction in the key they are played in advance. «Interest rates on short-term products will be reduced more significantly – the market remains in surplus liquidity, credit growth remains moderate, economic growth weak – demand at banks in short-term liabilities is negligible», — said Shilov.
The risks of inflation deviation
The head of the Bank of Russia Elvira Nabiullina on 2 February said that inflation expectations in Russia still do not meet the goals of the Central Bank, they are not anchored and can react to external and internal factors. In a press release following the meeting of the Board of Directors of the Central Bank notes that in the medium term the risks of deviations of annual inflation up from 4% continue to outweigh the risks of downward tilt.
«Interesting enough, the Central Bank passage in a commentary about the medium-term risks. The emphasis that Central Bank makes medium-term, medium-term risks in the next few years for inflation, suggests that the Central Bank is likely to act at lower rate quite carefully and will conduct this process quite smoothly», — said Lissovolik.
«It is rather a signal for a more medium-term and long-term expectations for that stage of decrease in rates coming to an end. The work of the Central Bank to bring its monetary policy to a more neutral character suitable to the final stage», — the expert believes.
Sandpipers of ACRE notes that the probability of exceeding the inflation target actually decreased. «Inflation at the beginning of the year looks really low, but the key points to inflation this year, we believe the end of second quarter beginning of the third. By this time a thing of the past the impact of short-term factors that strongly slow inflation in 2017», — said the analyst.
Analyst «Discovery Broker» Timur Nigmatullin believes that the growth of inflationary expectations of the population could be the main reason for the cautious reduction of the key rate. According to the January survey of Fund «Public opinion», the median value of estimates of expected inflation increased by 0.2 percentage points on a monthly basis — to 9.9% per annum.
«In addition to the deterioration of inflation expectations, the decision may be due to difficult market conditions. The reason for the slowing of inflation to January’s low of 2.2% year-on-year partly lies in the strong ruble and the slowdown of food prices because of lower global prices and oversupply in the domestic market,» said Nigmatullin.
Forecasts
Chief economist of «Expert RA» Anton tabah indicates that with an inflation rate of 2.2% the equilibrium real interest rate still remains high at 5%. «Accordingly, we will see until mid-years, a decrease by 75 basis points, in what combination depends on external factors. Until the end of the year if the current inflation scenario, we will likely see 6%» — the analyst believes.
With this value the equilibrium rate is not excluded that the Bank of Russia will have to change the inflation benchmark, says tabah. «But if we stay in low inflation a couple of years, it is possible that the Central Bank will find the explanation of why the new rule is not 4% and 3%, for example,» — said the expert.
Nigmatulin expects the end of the year, three more rounds to reduce the key rate of the Bank of Russia to 6.75% per annum, which will correspond to the equilibrium level. «To complete the cycle of declining rates of relatively tight monetary policy will continue to stimulate savings and thus will suppress domestic demand, which is an important element of economic growth,» he added.
In turn, the city indicates that there is no clear certainty of what the neutral level of rates will be final, despite the fact that previously, the regulator had voiced the corridor of 6-7%. «Until the end of the year we can expect further rate cuts from 50 to 150 basis points, which is a significant dispersion of values and expectations on the market. We expect that by the end of the year the rate will be reduced by another 75-100 basis points, thus its level will be fixed at 6.5-6.75 percent,» she said.
Experts of the company «the Renaissance the Capital» expect the Central Bank continue the cycle of weakening with a reduction in the rate by 25 basis points at the next meeting on March 23. «We maintain our view of 7% ultimate rate reached in the second quarter of 2018,» write the experts in the analytical report.
Analysts at Alfa Bank, in turn, believe that the Central Bank will prefer to lower the rate rather in the second half, not in the coming months.
