CBR leaves key rate unchanged

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/44

On October 28, the board of the Central Bank of Russia decided to keep its key rate at 10 %, where it has been since September 19. The CBR reiterated that no further rate cuts should be expected this year, but the key rate can thereafter fall if there are signs that inflation is cooling as expected and inflation risks are abating.

The CBR said 12-month inflation slowed to 6.2 % at end-October, but noted that much of the slowdown reflects transient factors such as this year’s good harvest. The ruble’s exchange rate has also appreciated and inflation expectations are rather high. The CBR said holding the key rate unchanged should reduce inflation expectations and encourage saving.

The recovery in output is unstable and has been uneven across branches and regions. The CBR said most barriers to growth are structural, so a moderately tight monetary stance should not prevent economic recovery.

The CBR’s inflation target is still 4 % at the end of 2017, but possible risks to reaching that figure include inertia of inflation expectations, lower household savings, higher real wages, pending decisions on mid-term fiscal policies, and volatility in commodities and financial markets. The CBR’s next regular board meeting is set for December 16.

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