Russia Monetary Policy


Bank Rossii maintains rates

At its 14 March meeting, Bank Rossii left the one-week repo rate unchanged at 7.00% as market analysts had expected. The decision came as geopolitical tensions remain intense and capital outflows continue to exert downward pressure on the value of the ruble. According to the Central Bank, the Russian economy continues to slow down, with investment activity dragged down by the climate of uncertainty and only consumer demand providing support. Regarding price developments, Bank Rossii acknowledged the possible impact of the depreciating ruble on the pick-up of inflation in the first month of the year, although it identified the increase in prices for vegetables, fruit and dairy products as the main cause. The Central Bank does not see inflation moderating in the first half of 2014, given the impact of the ruble depreciation and risks of an upward adjustment in inflationary pressures. However, slower economic activity, due in part to uncertainty among both businesses and consumers, should partially offset the impact of a weaker ruble on price inflation. While inflation will likely miss the 5.0% target set for this year, it will gradually move towards target levels in the medium term. Despite sluggish economic growth, monetary authorities are unlikely to launch an easing cycle any time soon. According to the Central Bank, “the Bank of Russia's priority is to contain the effect of exchange rate dynamics on inflation and to maintain financial stability. Hence, the Bank of Russia does not intend to lower the key rate in the coming months”. Against this backdrop, FocusEconomics Consensus Forecast panelists expect the refinancing rate to close 2014 at 5.92%. For 2015, the panel expects the rate to end the year at 5.20%.

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