Page 70 - RusRPTMay19

8.2 Central Bank policy rate
The board of the Central Bank of Russia (CBR) at the policy meeting of April 26 resolved to keep the key interest rate unchanged at 7.75%, and allowed for the cut in the rate as soon as the second quarter.
The decision was largely expected by the market, all of the analysts surveyed by Bloomberg and Reuters unequivocally believed that it was too early for CBR to cut now, but expected a 25bp cut very soon.
A favourable start of 2019 reopened the window for lower interest rates. “Current levels of consumer prices growth is trending lower than the forecast,” CBR commented, admitting slow inflationary dynamics in line with expectations.
In the meantime, the regulator also gave the timeline of the possible rate cut, which it refused to do previously. Should the base scenario of the CBR stay on track, the cuts would be possible already in the second or the third quarter of 2019, the press-release read.
The main risk factors highlighted by the regulator are inflationary expectations that remain not anchored, as well as external factors such as risks of global economic slowdown, geopolitical factors that would lead to higher currency and inflation volatility.
The next board meeting in on June 14 and the CBR will be widely expected to cut the key interest by at least 25bp, should inflationary dynamics and consumer demand remains, economic growth shows no signs of overheating, and sanctions risks do not deteriorate.
The Central Bank of Russia (CBR) could cut the key interest rate in 2019
should the economic situation develop according to the base-case scenario, the head of the regulator Elvira Nabiullina told the press.
However, the respected central banker declined to provide any specific timeline for the possible renewal of the monetary easing cycle.
At the last policy meeting of March the board of the CBR resolved to maintain the key interest rate at 7.75%, but issued a more dovish accompanying statement, allowing for monetary easing this year and lowering inflation guidance for 2019.
"We see the possibility of cutting the key interest rate this year," Nabiullina confirmed. But, the CBR "believes it is premature to give signals on when specifically this could happen this year," she added as cited by Reuters.
The factors the CBR will be watching will remain the same and include inflation and inflationary expectations dynamics, the development of external conditions. Previous consensus expectations of analysts surveyed by Reuters placed the next key rate cut in the fourth quarter.
Sanction risks remain the major factor for Russia this year, but Nabiullina reiterated that the regulator was ready for tougher sanctions on Russian bank and sovereign debt.
Russia’s inflation surged at the end of 2018 thanks to the unexpected
70 RUSSIA Country Report May 2019 www.intellinews.com