CBR holds key rate unchanged; policy outlook slightly adjusted

At its regular meeting, the board of the Central Bank of Russia last Friday (Feb. 3) decided to keep the key rate at 10 %, the level it has been at since last September. The CBR said that disinflation was in line with its forecast, with a gradual decrease in inflation expectations and a more-rapid-than-expected economic recovery. At the end of January, 12-month inflation had fallen to 5.0 %. The CBR said the slowdown in inflation was due in part to transient factors (last year's record harvest and the ruble's exchange rate). The CBR expects inflation to slow to its target rate of 4 % p.a. by the end of this year.

The CBR said that the daily forex purchases made for the finance ministry (BOFIT Weekly 2017/5) do not represent considerable inflation risks, given that monetary policy will remain moderately tight. It also mentioned other risks to meeting the inflation target, including the possibility that inflation expectations remain high or the household savings rate decreases.

The CBR slightly adjusted its outlook for lowering the key rate. A rate cut had earlier been envisioned for the first half of 2017 if inflation fell as expected. Now the CBR said that internal and external developments have reduced its capability to cut the key rate in the first half of this year. The key rate is notably positive now in real terms. The next regular CBR board meeting is scheduled for March 24.