Page 87 - RusRPTFeb19

8.2 Central Bank policy rate
The Central Bank of Russia (CBR) hiked its policy rate for a second time in 2018 in the December meeting, adding 25bp to the overnight rate to bring it to 7.75% at a closely watched monetary policy meeting on December 14.
"The decision taken is proactive in nature and is aimed at limiting inflation risks that remain elevated, especially over the short-term horizon. There persists uncertainty over future external conditions, as well as over the reaction of prices and inflation expectations to the upcoming VAT rate increase. The increase in the key rate will help prevent firm inflation anchoring at the level significantly exceeding the Bank of Russia’s target," the regulator said in its statement put out after the meeting.
Prior to the rate-setting meeting, analysts were evenly divided on whether there would be a rate hike this month as the economy is giving off conflicting signals.
In September, as inflation broke beyond the CBR's forecast range of 2.8-3%, while sanctions pressure provoked volatility and pressure on Russian assets, the national lender surprised analysts by front-loading the monetary policy rate with a preventive 25bp hike to 7.5%. Satisfied with the results of that intervention, the regulator then held the rate in October.
Inflation was 3.8% in November, still below the central bank’s target rate of 4%. The CBR said on December 6 that although CPI inflation had already accelerated to 3.9% as of December 10, it was not expected to breach 4% in 2018.
“This November’s upward movement of inflation was largely driven by annual food price growth accelerating from 2.7% to 3.5%. This was supported by changes in the balance of supply and demand in certain food markets," the regulator said.
The official inflation band according to the CBR’s forecasts for the consumer price growth rate is 3.9-4.2% by the end of 2018.
The CBR is probably preparing for more ruble volatility after the holiday season, with the US government threatening to impose “crushing” sanctions on Russia.
The rate hike will further contain growth in 2019, despite this week’s reappraisal of the rate of growth in 3Q18. The revision increased the previously stated 1.3% to 1.5%. But the growth rate still remains well below potential.
87 RUSSIA Country Report February 2019 www.intellinews.com