BOFIT Weekly Review 2015/45
Russian central bank keeps rates unchanged
The Central Bank of Russia last week decided to keep its key rate at 11 %, a level held since the start of August. The CBR noted that, while inflation risks remain significant, it expects inflation to slow from the current rate of 15.6 % to below 7 % by October 2016. The markets were slightly surprised by the CBR’s announcement that it will start lowering rates if inflation slows as expected.
Regarding inflation risks, the CBR reminded of high inflation expectations and a possible weakening in the global economy. Low oil prices would drag down the ruble and translate to inflation. The CBR reiterated its assessment that there is also an inflation risk stemming from a possible relaxation of fiscal policy, e.g. if there would be a decision to revisit indexation of various social benefits paid out by the state. Presently, the 2016 index adjustments for pensions and many other social payments are on track to be lowered significantly from previous years.