BOFIT Viikkokatsaus / BOFIT Weekly 2017/13

The key rate is 9.75 % from this week. The CBR noted that a faster-than-expected drop in inflation and a slight decline in inflation expectations justified the rate cut. The board added that further gradual rate cuts are possible in 2Q17 and 3Q17.

The CBR estimates that 12-month inflation has recently slowed to 4.3 %. It sees that an important factor in the recent slowdown of inflation has been the ruble's strengthening on rising oil prices and increased interest of foreign investors. CBR governor Nabiullina said the central bank does not share the finance ministry's view of a visibly overvalued ruble.

Finance minister Anton Siluanov recently stated that the ruble is overvalued by 10–12 %. The ruble's exchange rate affects also a large part of Russian budget revenues through oil taxes, which are largely based on the dollar price of oil. Thus, these tax revenues decline in ruble terms when the ruble appreciates.