Russia Monetary Policy

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Russia: Bank Rossii cuts interest rates for fourth time this year, hints at reducing pace of easing

June 15, 2015

On 15 June, Bank Rossii cut the one-week repurchase rate by 100 basis points to 11.50%, which was a decision in line with market expectations. This is the fourth time the Bank has decided to cut the main monetary policy rate since the swift rate increase in December 2014, which brought the one-week repo rate up to 17.00%.

The regulator indicated that declining inflation and increasing risks of a protracted recession in the Russian economy were the main reasons behind its decision to continue lowering interest rates. In its assessment of the economy, the Central Bank signaled that recent economic indicators confirm that the economy is in fact cooling rapidly. Monetary authorities recognized that structural factors are hampering economic growth, but that cyclical aspects and external shocks are exacerbating the economy’s deterioration. Private consumption is being hit by a deterioration in the labor market, and wage decreases and investment will continue to contract as a result of firms’ more negative assessment regarding Russia’s economic outlook coupled with the tightening of monetary conditions. Moreover, the Bank stated that, due to the floating exchange rate, “exports will decline less significantly,” and that, consequently, net exports will be the only component that contributes to growth. The Bank underlined that the lack of growth in domestic demand, relatively tough monetary conditions and the gradual appreciation of the ruble will facilitate a further reduction in inflation going forward.

The Central Bank signaled that it will continue to cut the main monetary policy rate as inflation falls further. However, the regulator recognized that inflation risks could reappear, primarily due to the aggravation of external economic conditions, the revision of administered prices and tariffs planned in 2016, and fiscal easing. As a result, the Bank hinted that that future monetary policy easing could be limited if these risks in fact reappear.

FocusEconomics Consensus Forecast panelists expect the Bank Rossii to continue easing monetary policy throughout the 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%.


Author:, Senior Economist

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Russia Monetary Policy June 2015 0

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


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