BOFIT Weekly Review 2015/38
CBR leaves rates unchanged
As the markets expected, the Central Bank of Russia suspended systematic rate cuts at last week’s meeting, leaving the key rate at 11 %. Having cut at every meeting since the start of the year, the CBR board noted that, while recent sharp depreciation of the ruble has accelerated inflation and increased inflationary pressures in the coming months, Russia’s economic prospects overall remain weak. With the drop in global oil prices and more uncertainty on international financial markets, there is a heightened risk output will fall further than earlier expected and reduce inflationary pressures.
Russian 12-month inflation accelerated to nearly 16 % in August. The CBR now sees inflation slowing to 7 % by September 2016, and further expects to reach its 4 % inflation target in 2017. As one of the major risks for inflation the CBR regards further deterioration of international economic conditions. If world oil prices would drop further and uncertainty on international financial markets would increase, the ruble would be subjected to further depreciation pressures causing increased inflation risks. The CBR has, however, estimated that the net outflow of private sector capital has slowed in recent months, which eases depreciation pressure on the ruble. According to preliminary CBR figures, private sector net capital outflow in the first eight months of the year amounted to $52 billion, while the current account surplus for the period was about $51 billion.
Among other inflation risks the CBR mentioned possible changes in planned hikes in regulated prices in 2016 and 2017 and relaxation of fiscal policy.