BOFIT Viikkokatsaus / BOFIT Weekly 2019/37

On September 6, the Central Bank of Russia’s board of directors again lowered the key rate by 0.25 percentage points. It was the third cut since mid-June. The move was expected by the markets, and from Monday (Sept. 9) onwards the key rate is 7 %.

The CBR noted that inflation had slowed to 4.3 % p.a. at the end of August. Moreover, economic growth was continuously lower than the CBR had expected. The Bank said it would consider whether further rate cuts will be necessary if its baseline forecasts for inflation and economic growth materialise. The CBR currently estimates that the targeted neutral level of its key rate is in a range of 6−7 % in nominal terms and 2−3 % in real terms.

The CBR lowered its inflation forecast and expects inflation at the end of this year to be running in the range of 4−4.5 % before settling to close to 4 %. It also lowered the economic growth outlook. The CBR expects GDP growth of 0.8−1.3 % this year and 1.5−2 % next year if the price of Urals crude oil falls so that next year’s average is 55 dollars a barrel. In accordance with its June forecast, the CBR continues to expect the real volume of household consumption to grow this year by 1−1.5 %. At the same time, the outlook for fixed investment growth was lowered to 0−1 %, while the outlook for growth in export and import volumes fell to around zero.