Russia Monetary Policy December 2016

Russia

Russia: Russian Central Bank maintains rates at last meeting of 2016

December 16, 2016

On 16 December, Russia’s Central Bank left the one-week repo rate at 10.00%. The decision was well expected by the markets, given the Bank’s previous forward guidance that it would maintain interest rates at least until the end of the year. Analysts and the markets therefore focused instead on the tone of the monetary policy statement and any hints about the authority’s further actions.

In the statement, the Bank noted that inflation risks have “subsided somewhat”. It added that, “price growth has slowed down noticeably in all key groups of goods and services and monthly seasonally adjusted inflation indicators have declined as well. The ruble exchange rate dynamics continues to be conducive to inflation deceleration as oil prices have been higher than expected and Russian financial assets remain attractive to external investors. A good harvest still facilitates a reduction in food inflation. At the same time, a more confident drop in non-food price growth is necessary for sustainable inflation decline.”

Commenting further on the Bank’s statement, Anatoliy A Shal, Chief Russia Economist at J.P. Morgan said:

“The CBR delivered on expectations of softening the language, admitting a notable progress with disinflation and a reduction in inflation risks. Fiscal-related risks subsided, liquidity-related concerns deserved less attention, inflation expectations have slid, although remain far from being anchored.”

Meanwhile, Bank Rossii barely changed its forward guidance from previous statements, commenting that it will consider possible rate cuts in the first half of 2017. Although this—still vague—statement was expected, Governor Elvira Nabiulina did surprisingly reveal some preference for the timing of a rate cut, saying in a press conference that a return to cuts is more likely in Q2. This contrasts market expectations, which had been pricing in a rate cut in Q1 2017. The next monetary policy meeting is scheduled for 3 February.

Since the Central Bank signaled that it may cut rates in H1 2017, while the analysts we surveyed this month expect the interest rate to end 2017 7.19%. Economists see the Central Bank lowering the monetary policy rate further in 2018, with an average Consensus of 7.19%


Author:, Senior Economist

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Russia Monetary Policy Chart


Russia Monetary Policy December 2016

Note: 1-Week Repo rate in %.
Source: Central Bank of the Russian Federation (CBR).


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