Russia Monetary Policy April 2018

Russia: Central Bank pauses easing cycle in April

At its 27 April meeting, the Board of Directors of the Central Bank of the Russian Federation (CBR) decided to hold the key interest rate unchanged at 7.25%, a move widely expected by market analysts. The decision marked a pause in the Bank’s easing cycle that has brought the key interest rate to the lowest level since April 2014.

Heightened volatility in Russian financial markets and a notable depreciation in the ruble caused the CBR to halt its easing cycle. Russian assets have come under pressure after a fresh round of sanctions was imposed by the U.S. at the start of April, and the notable plunge in the value of the ruble has ramped up risks to the inflation outlook. In its accompanying statement, the Bank commented that the tense geopolitical backdrop and a weak ruble could cause inflation to quicken, but it stated that it does not see a risk of it overshooting the 4.0% target.

Looking ahead, the Bank signaled that it will resume cutting the interest rate, but likely at a more subdued pace than expected prior to April’s events. The Bank reiterated that it plans to complete the transition to neutral monetary policy by the end of the year; however, the reduction in rates needed to bring about neutral monetary conditions has lessened in the past month given rising global interest rates and a higher country risk premium for Russia. Commenting on the future of the key rate, Anatoliy A Shal, Economist at JPMorgan adds:

“Given the more cautious forward guidance from the CBR, we lift our end-2018 rate forecast to 6.75%, from 6.5%, with the next cut pushed back into September from June. We had highlighted upside risks to our end-year rate forecast and the statement confirmed the CBR’s more cautious approach to policymaking. The higher rate profile increases downside risks to our 1.6% growth forecast in 2018 and 2019.”

The next monetary policy meeting is scheduled for 15 June 2018.

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