Russia: Central Bank leaves interest rates unchanged for third consecutive meeting
December 11, 2015
In its last monetary policy meeting of 2015, the Central Bank of Russia (Bank Rossii) decided to maintain the one-week repo rate at 11.00%. Market analysts were split over whether the Bank would cut rates or leave them unchanged in this meeting. The Bank held the monetary policy rate unchanged for a third consecutive meeting, after five rate cuts.
As in its previous two meetings, the Central Bank indicated that it left the interest rate unchanged due to still high inflationary pressures, while stating that the risks of further economic deterioration persist. The Central Bank indicated that, despite high inflation, it is slowing down in line with authorities’ forecasts. The slowdown reflects mainly the gradual exhaustion of the impact from the ruble depreciation as well as a base effect, as consumer prices began to increase quickly toward the end of 2014. The Bank noted, however, that the slowdown in inflation occurred somewhat more slowly than expected. On its assessment regarding economic activity, the Bank commented that while industrial production and investment continued to contract in November, the contraction was less pronounced than in previous months. That said, a contraction in private consumption accelerated. The Bank expects this trend to continue at the outset of 2016, while further developments will depend on the pace of the economy’s adjustment to external shocks.
Russian monetary officials pointed out that will continue falling at the beginning of 2016 and that it does not expect that trade restrictions imposed to Turkey and Ukraine will have a significant impact on consumer prices. Moreover, a slack in domestic demand and relatively tight monetary conditions will dampen inflation further. A slowdown in inflation will consequently create the prerequisites for a decrease in inflation expectations. The Central Bank will hold the next—and first of the year—board meeting on 29 January.
Author: Ricardo Aceves, Senior Economist