Russia Monetary Policy June 2019

Russia: Central Bank cuts key rate in June

At its 14 June meeting, the Board of Directors of the Central Bank of the Russian Federation (CBR) decided to cut the key interest rate from 7.75% to 7.50%, as had been expected by market analysts. This marked the first cut in over a year, after the Bank hiked rates in H2 2018 to stem inflationary pressures. Previously, the CBR had been in a two-year easing cycle, designed to support the economic recovery.

Easing price pressures and slow growth drove the CBR’s decision to trim rates. Inflation began to slow in May and is expected to continue easing as the effect of the VAT increase on prices has materialized and due to anemic demand. In the accompanying statement, the Bank revised down its inflation projections and now sees inflation ending the year between 4.2–4.7% (previously: 4.7–5.2%). Moreover, economic activity in the first half of the year has been lower than expected, hampered by slowing export growth and stunted investment. The CBR also trimmed its growth forecast for 2019 to 1.0–1.5% (previously: 1.2–1.7%).

Looking ahead, the Bank struck a dovish tone and suggested further cuts could be on the cards. Short-term inflationary risks in Russia’s economy have eased in recent months, partly due to the more dovish outlook for interested rates in advanced economies. The CBR stated that there is “the possibility of further key rate reduction at one of the upcoming Board of Directors’ meetings”.

The next monetary policy meeting is scheduled for 26 July.

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