BOFIT Viikkokatsaus / BOFIT Weekly 2017/51

At its final interest-rate meeting of the year, the CBR board decided to keep easing monetary policy and cut the key rate by 50 basis points. Since last Monday (Dec. 18), the key rate has been 7.75 %. The CBR cut the key rate 25 basis points in October.

The markets generally expected a rate cut of 25 basis points. The CBR said its larger-than-expected rate cut was justified by lower 12-month inflation and the decision by oil-producing countries to extend their production restraint agreement to the end of this year. The CBR noted that the current low rate of inflation, around 2.5 % p.a., still largely reflects transient factors. While the agreement on holding down oil output internationally should reduce inflation risks over the next twelve months, the CBR noted that medium-term inflation risks are still on the upside.

With the annual inflation target set close to 4 %, the CBR now believes convergence to that level of inflation should be achieved within the second half of 2018. The CBR will continue its gradual transition from a moderately tight to neutral monetary stance during the first half of 2018, with a possibility of further cuts in the key rate. The next interest-rate meeting is scheduled for February 9.