BOFIT Weekly Review 2015/25
CBR lowers key rate for fourth time this year
The Central Bank of Russia lowered its key interest rate one percentage point on Tuesday (June 16) to 11.5 %. The CBR said the rate cut was justified in light of lower inflationary pressures and Russia’s weak economy. The CBR expects inflation to fall further over the next 12 months to below 7 % and reach its 4 % target in 2017. The CBR said that, while it was prepared to keep cutting rates, emerging inflation risks could limit monetary easing in the months ahead.
As the effects of the price spike caused by the ruble’s dive in the final months of 2014 have faded, inflation has gradually subsided in recent months. Moreover, the ruble enjoyed a period of strengthening between early February and end-May, while consumer demand continued to contract. The CBR also noted that most of the inflationary impact from Russian counter-sanction import bans introduced in August 2014 has been digested. However, as of end-May, consumer prices were still nearly 16 % higher than a year earlier. Food price inflation traditionally slows in the summer months as domestic produce reaches the market. On the other hand, the hikes of 7.5−10 % in rates for regulated utilities and services will add to inflationary pressures when they take effect on 1 July. The CBR stated that a possible relaxation of fiscal policy could also be an inflation risk.
Russian 12-month inflation and CBR key rate, %
Source: Macrobond