CBR did not change the key rate in the face of increased uncertainty

US, WASHINGTON (ORDO NEWS) — The Russian Central Bank, as expected, decided to keep the key rate at 6.00%, despite the fact that events are developing with a significant deviation from the base scenario of the forecast of the regulator against the backdrop of the coronavirus epidemic and the collapse in oil prices.

According to a Reuters poll conducted on Monday, all 25 experts predicted that the key rate would remain at 6.00% after it was cut six times in a row at previous meetings.

After the collapse of oil prices and the fall of the ruble, which had previously suffered from risk aversion due to the spread of coronavirus, the Russian currency became one of the worst in the world in terms of dynamics against the dollar over the past two weeks.

On the eve of a week of silence, the Central Bank called the weakening of the ruble a significant, but short-term, inflationary factor. Traditionally, the reaction of monetary policy is required for sustainable, not one-time factors, representatives of the CBR explained.

“The ruble weakening is a temporary inflationary factor. Under his influence, annual inflation may exceed the target level in the current year. However, a significant restraining effect on inflation will be exerted by the dynamics of internal and external demand, which is associated with a pronounced slowdown in global economic growth and increased uncertainty, ”the Central Bank explained on Friday.

In the future, the Bank of Russia will make decisions at a key rate taking into account the actual and expected dynamics of inflation relative to the target, the development of the economy on the forecast horizon, and also assessing risks from internal and external conditions and the reaction of financial markets to them, the regulator pointed out.

First Deputy Prime Minister Andrei Belousov said on Monday that there is no crisis in the Russian economy and it is risky to pump domestic demand with large-scale financial injections because of the likelihood of the devaluation of the ruble.

The Central Bank did not voice new forecasts of key indicators, but said that in 2020 inflation could temporarily exceed the target level, and then it is expected to return to 4% in 2021. The temporary acceleration of annual inflation in the coming months will be caused by the weakening of the ruble in February – March, and inflationary expectations of the population and business may also increase.

“At the same time, the slowdown in the growth of domestic and foreign demand is a significant disinflation factor. It will have a chilling effect on inflation, ”the CBR writes. In anticipation of GDP growth, the Central Bank also did without figures: moderate growth of the Russian economy at the beginning of the year could be replaced by a decrease in economic activity in the coming quarters.

“The growth path of the Russian economy will largely depend on the scale of the consequences of the further spread of the coronavirus and the measures taken to combat it, their impact on production and demand, as well as business and consumer sentiment,” the CBR expects.

In addition to the weakening of the ruble, the Central Bank called the short-term inflation risk a temporary increase in demand for certain goods and services in connection with the formation of stocks by the population. At the same time, a significant weakening of external demand, a possible decrease in consumer activity and lag effects from the tightening of monetary conditions may be sources of significant disinflation risks in the medium term, the CBR said.

Along with the decision on the key rate, the Bank of Russia took a number of measures aimed at ensuring financial stability, supporting the economy and the financial sector in the context of the coronavirus pandemic. The next meeting of the CBR Board of Directors on the key rate is scheduled for April 24, 2020.


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