Russia Monetary Policy April 2019

Russia: Central Bank holds key rate in April

At its 26 April meeting, the Board of Directors of the Central Bank of the Russian Federation (CBR) held the key interest rate at 7.75%, as was expected by market analysts. The Bank has kept rates on hold this year after reversing course in H2 2018 when rates were hiked to stem inflationary pressures; this had followed a two-year easing cycle, designed to support the economic recovery. Notably, the Bank kept a dovish tone in its communiqué this month and provided clearer forward guidance on when a rate cut could materialize this year.

The dovish tune and decision to hold rates was due to lower-than-expected inflation in Russia’s economy and price pressures should wane further in the coming months as the effect of the VAT increase on prices has largely materialized. In the accompanying statement, the Bank admitted that inflation has come in “somewhat below” its forecast and emphasized that the pre-emptive rate hikes last year have helped to bring down price pressures. The CBR sees inflation falling to its 4.0% target in the first half of next year.

Looking forward, the Bank gave clearer guidance than the previous meeting stating that it “admits the possibility of turning to cutting the key rate in Q2-Q3 2019” if economic conditions evolve as expected. Short-term inflationary risks from the VAT hike and food prices have faded somewhat recently, while the Bank stated that longer-term risks linger from volatile financial markets and global commodity prices, unanchored inflation expectations and a risk of a pronounced global growth slowdown.

The next monetary policy meeting is scheduled for 14 June.

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