Russia Monetary Policy March 2018

Russia: Central Bank cuts key interest rate to 7.25% in March

At its 23 March meeting, the Board of Directors of the Central Bank of the Russian Federation (CBR) decided to cut the key interest rate by 25 basis points to 7.25%, a move widely expected by market analysts. The decision followed a same-sized cut in February and marks the lowest policy rate since April 2014.

Low inflationary pressures have given the Bank space to pursue an easing cycle as it aims to transition to neutral monetary policy. In its accompanying statement, the CBR commented that inflationary expectations are continuing to fall, and that price pressures remain low; they are, however, low partly due to a favorable base effect. The Bank expects inflation to return to its target of 4.0% in the second half of 2018 as this base effect from high food prices last year fades. Notably, it made no changes to its growth projections for the Russian economy this month despite higher oil prices, citing ongoing structural issues and lower sensitivity to oil price fluctuations as the reasons for the unchanged prospects.

Looking forward, the Bank signaled that more cuts are in the pipeline, as it stated that it plans to complete the transition to neutral monetary policy by the end of the year. A key interest rate of between 6–7% is considered as roughly neutral. The Bank, however, highlighted one new upside risk to its inflation outlook: A tight labor market could put upward pressure on prices through higher wages. The next monetary policy meeting is scheduled for 27 April 2018.

Russia Interest Rate Forecast

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