Russia Monetary Policy


Central Bank cuts interest rates for second time this year

The recent stabilization in both the ruble and global oil prices prompted Russia’s Central Bank to cut the one-week repurchase rate by 100 basis points to 14.00% at its13 March monetary policy meeting. March’s cut, which was in line with market expectations, is the second this year and came after the monetary authority’s emergency rate hike in December 2014, through which it attempted to stabilize the freefall of the ruble and mitigate a potential currency crisis. The Bank insisted that its decision is intended to provide a balance between lowering inflation and supporting economic growth.

In its statement, the Central Bank said that the economy had managed to grow somewhat at the end of 2014. However, the Bank pointed out that, “structural factors continue to exert a restraining influence in economic growth,” although it did recognize that the economic slowdown is becoming more cyclical. Monetary authorities warned that economic activity will contract in the coming months, which, will contribute to lower inflation. Economic activity is expected to deteriorate going forward mainly due to low oil prices—on average, oil prices are lower compared to last year—more difficult financial conditions for Russian borrowers, and the fact that Russian firms are increasingly finding foreign capital markets to be inaccessible. Consequently, investment is expected to deteriorate and drag on growth. However, an increase in exports will partially mitigate this drag as exports will become more competitive due to the depreciation of the ruble. The Bank went on to state that it expects GDP to contract between 3.5% and 4.0% in 2015.

Regarding consumer prices, the Central Bank stated that inflation remains high due to the ruble’s depreciation and imports restrictions. However, monetary authorities said that the impact of these supply-side factors will fade away in the coming months and will have been exhausted at the end of the year. Simultaneously, the Bank indicated that weaker growth in domestic demand and the fall in real wages will lead to downward pressures on inflation. The Bank foresees that inflation will reach its peak in Q2 2015 and that it will fall to 9.0% at the end of the year. It is expected to decline further to reach the Bank’s 4.0% inflation target in 2017. The next monetary policy meeting is scheduled for 30 April.

FocusEconomics Consensus Forecast panelists expect the Central Bank to continue easing the monetary policy throughout this year. They expect the refinancing rate to close 2015 at 8.69%. For 2016, the panel expects the rate to end the year at 7.58%.

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Russia Monetary Policy Chart

Russia Monetary Policy March 2015

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

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