Russia Monetary Policy September 2016


Russia: Bank Rossii cuts rates in September, plans to keep them on hold until 2017

September 16, 2016

At its 16 September monetary policy meeting, the Central Bank announced a cut to the one-week repo rate from 10.50% to 10.00%, a decision that was in line with market expectations. It also indicated that it will hold off from further monetary easing until the first or second quarters of 2017. The rate cut in September follows the Bank’s decision to leave interest rates unchanged in July and marks the second time this year that the monetary authorities have lowered the main monetary policy rate. The first rate cut in nearly a year was reported in June, when Bank Rossi slashed the policy rate by 50 basis points.

The recent noticeable drop in inflation was the main driver behind the Bank’s decision to cut rates, but the authorities stated that in order to cement a sustainable fall in inflation, “the current value of the key rate needs to be maintained till end-2016 with its further possible cuts in 2017 Q1-Q2.” Considering its decision, the Bank remains confident that with a still relatively-tight monetary policy, inflation will fall to 4.5% in Q3 2017 and decrease further toward its 4.0% target at the end of 2017. The Bank added that the ruble’s stabilization against other major currencies and the outlook for a good harvest this year will cause food prices—the most volatile component of the consumer price index—to continue falling in the coming months. Meanwhile, with its decision to maintain the policy rate at 10.00% for the remainder of the year, Bank Rossii intends to reduce inflation expectations.

Regarding its current monetary stance and economic activity, the Central Bank recognized that a tight monetary policy is not hindering the recovering in regions and sectors of the economy. It said that, “[the] persistent revival in production activity is still unstable and patchy across industries and regions. According to Bank of Russia estimates, the moderately tight monetary conditions do not hamper recovery in economy, whereas the main obstacles are caused by structural effects.” However, the rate cut was needed in order to provide some respite to credit growth, inspire stronger activity and ultimately alleviate the contraction in Russia’s economy, battered by low oil prices and international sanctions. The Bank expects positive quarterly GDP growth in the second half of 2016, but reckons that growth will be weak in 2017, “staying below 1.0%”.

Bank Rossii ended its communiqué by announcing that it will continue assessing the evolution of inflation and its determinants, as well as risks pertaining to the outlook. The Bank’s next monetary policy meeting is scheduled for 28 October.

Since the Central Bank signaled that it will pause the easing cycle until Q1 2017, the analysts we surveyed this month expect the interest to end this year at 10.00%. Next year, analysts expect the Central to resume the easing cycle and see the monetary policy rate ending the year with an average Consensus of 8.11%.

Author:, Senior Economist

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Russia Monetary Policy Chart

Russia Monetary Policy September 2016

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

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