BOFIT Viikkokatsaus / BOFIT Weekly 2018/07

The Central Bank of Russia continued monetary easing at their first board meeting of the year, lowering the key rate by 25 basis points. Effective from February 12, the key rate is 7.5 %. The key rate was last cut by 50 basis points on December 15.

The CBR explained the rate cut was chiefly justified by low inflation and reduced inflation risks over the near term. At the end of January, consumer price inflation was 2.2 %. The central bank noted that permanent factors may have more impact on inflation than previously estimated, adding that it seems less likely the official 4 % inflation target (12-month average) will be exceeded this year. Near-term inflation risks have abated, but still prevail over the medium term. Overall risks have shifted towards economic growth factors. In this environment the CBR will continue to reduce the key rate.

Stock exchange indices around the world see-sawed over the past two weeks. Over half of the Moscow exchange's main share index is weighted to oil and gas companies, so share prices tend to track closely oil prices. Since the beginning of February, however, the price of Urals-grade oil, measured in dollars, declined 12 % while the Moscow exchange's dollar-denominated RTS index dropped 5 %. The ruble-dollar rate has weakened by nearly 3 % (ruble-euro by under 2 %). Last year, the ruble's exchange rate occasionally diverged noticeably from changes of the oil price.