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more substantial decision by the CBR to withdraw from interventions in the currency market and suspend its currency purchases for the rest of the year, which bne IntelliNews r eported but has remains largely uncommented on.
“The decision to raise the key rate looks like a cover-up,” Natalia Orlova, chief economist at Alfa Bank said to Bloomberg. “It allowed them to distract attention from the announcement on halting the FX purchases and to create the impression that the central bank is regulating the economy with the help of interest rates.”
The Central Bank of Russia (CBR) says real interest rate will wall from the current 4.1% to 2-2.5% in 2019, the director of the monetary policy department of the Central Bank Alexey Zabotkin said, who adds the key rate now corresponds to a neutral monetary policy.
Real interest rates are the CBR’s monetary policy rate minus inflation.
Inflation has passed a low earlier this year of 2.2% and is now rising again, partly fuelled by the devaluation of the ruble over the summer. The national currency has lost some 17% YTD and inflation has risen to 3.4% as of the end of September.
“With inflation expectations for the next year of 5–5.5%, the real interest rate is 2–2.5%,” said Zabotkin at a meeting of the Duma’s expert committee.
In mid-September, for the first time since 2014, the Central Bank increased the key rate by 0.25 percentage points to 7.5% per annum.
“Next year, inflation is temporary, but will exceed 4% for almost the entire year. In this regard, we fear the growth of inflation expectations. Several pro-inflation events that coincide in time — this is an increase in VAT and the transfer of effects of the exchange rate movement to inflation — can make the reaction of inflation expectations longer, ” said Zabotkin.
75 RUSSIA Country Report November 2018 www.intellinews.com