Russia Monetary Policy


Bank Rossii leaves interest rates unchanged for second consecutive meeting but pledges a cut in the coming months

Heading into the last quarter of 2015, the Central Bank of Russia (Bank Rossii) held its monetary policy meeting on 30 October in which it announced that it will leave the one-week repo rate unchanged at 11.00%. Market analysts were split over whether the Bank would cut rates or leave them unchanged in this meeting.

Russian monetary authorities left the interest rate unchanged, citing that high inflationary risks persist, while indicating that the balance between inflation risks and the risks of a further economic deterioration have remained unchanged since the previous meeting. The Bank noted that inflation was 15.6% in October, according to its estimates, which means that it would be virtually unchanged from the 15.7% reading registered in September (the last month for which real data are available). In addition, the Bank recognized that, although inflation expectations moderated recently, they remain elevated. Regarding the country’s economic performance, the Central Bank said that, “September saw a somewhat slower economic downturn, evidenced by key macroeconomic indicators.” The Bank affirmed that domestic demand remains weak, particularly fixed capital investment, as a result of persistent uncertainty and tough lending conditions.

Russian monetary officials pointed out that due to weak domestic demand and tight monetary conditions, inflation and inflation expectations will fall gradually. The Bank still forecasts that inflation will fall below 7.0% in October 2016 and that it will be on track to reach the 4.0% inflation target in 2017. Therefore, as the Bank sees that the fall in inflation is in line with its forecast, monetary authorities indicated that a downward revision to the key monetary policy rate at one of their forthcoming meetings is in the cards. The Central Bank will hold the next—and last of the year—board meeting on 11 December.

FocusEconomics surveyed a group of analyst this month and, although some of them expect the Bank to keep the monetary policy rate at 11.00% this year, the vast majority predict further cuts. Our panel of economists expect the one-week repurchase rate to end this year at 10.46% and 2016 at 8.27%.

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Russia Monetary Policy Chart

Russia Monetary Policy October 2015

Note: 1-Week Repo rate in %.
Source: Central Bank of the Russian Federation (CBR).

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