Russia Monetary Policy June 2017


Russia: Bank Rossii lowers key rate to 9.00%

June 16, 2017

Russia’s Central Bank (CBR) cut rates at a third consecutive meeting on 16 June, lowering the key rate from 9.25% to 9.00%. The move surprised market analysts who had expected a bolder 50 basis point cut.

Inflation has been falling and moving toward the 4.0% inflation target in recent months (April and May: 4.1%) on the back of the Bank’s tight monetary policy and a stronger ruble. At the same time, while the economic recovery is broadening and the Bank upgraded its GDP growth forecast for this year to 1.3%–1.8% (previously: 1.0%–1.5%), price pressures are expected to remain contained due to still-weak domestic demand. This situation prompted policy makers to make a downward adjustment to interest rates.

The Bank’s forward guidance in its accompanying statement sounded more cautious. While the CBR pointed out that risks to the inflation outlook in the short-term are limited, the list of potential mid-term inflation risks was more extensive than in the previous months and included uncertainty in the oil market, a recovery in consumer demand, labor force shortages and possible tax hikes. The Central Bank will hold its next monetary policy meeting on 28 July.

The analysts we surveyed this month expect the Central Bank to continue cutting interest rates in the second half of the year and forecast the interest rate to end this year at 8.23%. Economists see the Central Bank lowering the monetary policy rate further in 2018, with an average Consensus of 7.14%.

Author: Angela Bouzanis, Senior Economist

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Russia Monetary Policy Chart

Russia Monetary Policy June 2017 0

Note: Key rate in %.
Source: Central Bank of the Russian Federation (CBR).

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