The Bank of Russia lowered its key interest rate to 9.00% per annum




The Board of Directors of the Bank of Russia June 16, 2017 has decided to reduce the key rate to 9.00% per annum, according to a press release of the regulator.

The Board of Directors notes the persistence of inflation near the target level, the continued reduction of inflation expectations and the recovery in economic activity. Short-term inflation risks have declined, at the same time, in the medium term they remain. To maintain inflation close to the target values of 4%, the Bank of Russia will continue carrying out moderately rigid monetary policy.

The Bank of Russia sees room to cut key rates in the second half of 2017. In the future, making the decision, the Bank of Russia will proceed from the assessment of inflation risks, inflation dynamics and Economics in relation to the forecast.

The Board of Directors of the Bank of Russia, taking the decision on the key rate, based on the following:

Dynamics of inflation. Annual inflation in may was 4.1%, remaining near the target level. Low inflation is gradually acquiring resistance. The growth rate of prices are becoming more homogeneous by region and main product groups and services. Continued slowdown in the growth of prices for nonfood goods and services. Food inflation remains at relatively low levels, although at the present time in connection with exhaustion of stocks of the previous harvest there is an increase in the annual growth rate of prices for fruit and vegetables. Against this background has occurred the expected short-term increase in annual inflation, which, according to the 13 June was 4.2%.

In a significant deceleration of inflation the inflation expectations of population and business has declined substantially. However, this trend may be temporarily suspended on the back of the seasonal increase in prices for certain types of fruits and vegetables, to the dynamics being the most sensitive to inflationary expectations. For anchoring of inflation close to 4% further decline in inflation expectations.

The disinflationary impact of domestic demand persists. Households mostly continue to adhere to the savings behavior. Thus there is a gradual revival of consumer activity. Consumer lending does not create significant inflationary risks.

A significant contribution to slowing growth of consumer prices since the beginning of this year has made the strengthening of the ruble. The influence of this factor on the dynamics of inflation is gradually decreasing on the background of a relatively stable exchange rate.

The monetary conditions. An important role in the inflation slowdown has played a moderately tough monetary conditions. The decline in the key rate interest rate on loans decreased. However, their level supports a balanced demand for credit. The recovery of demand is not yet outstripping the growth in wages. Banks continue to maintain a conservative policy by mitigating price and non-price credit conditions, especially for the reliable borrowers. The reduction in Deposit rates have partly led to slower growth of deposits. The Bank of Russia will form such monetary conditions that will support the incentives for savings, which will limit inflationary risks.

Economic activity. The continuing recovery in economic activity. Along with the growth of investments and industrial production, increased household consumption. Currently moderate growth in consumer spending does not create inflationary pressure in the conditions of increase in the supply of goods and services.

Based on current rehabilitation trends, the Bank of Russia increased the forecast of GDP growth to 1.3% to 1.8% in 2017. However, economic growth approaching potential levels. One of the limitations is the situation on the labour market, where there are already signs of shortages in certain segments. In the future, the GDP growth rate above 1.5–2% per year would be achievable if the structural reforms.

Inflation risks. Short-term inflationary risks associated with the dynamics of oil prices, declined in connection with the extension of the agreement on the limitation of production of oil exporting countries. However, traditionally this time of year manifest the short-term risks associated with the expected harvest, its impact on prices of food commodities and inflation expectations.

Medium-term risks remain elevated. First, they are related to the further dynamics of oil prices, which in the conditions of the agreements began to form at a lower level than expected. Legislation and implementation of fiscal rules will help to reduce these risks. Second, the increasing structural shortage of labor resources may lead to significant delays in the rate of productivity growth from wage growth. Third, a source of inflationary pressure may be the change of behaviour of households associated with a significant reduction in the propensity to save. Fourthly, there remains the sensitivity of inflation expectations to price changes for individual groups of goods and services and exchange rate dynamics. Fifth, the possible implementation of tax maneuver can lead to a temporary acceleration of inflation.

Considering these factors will require the continued moderately tight monetary conditions over a long time for anchoring of inflation close to the target level.

The Bank of Russia sees room to cut key rates in the second half of 2017. In the future, making the decision, the Bank of Russia will proceed from the assessment of inflation risks, inflation dynamics and Economics in relation to the forecast.

The next meeting of the Board of Directors of the Bank of Russia, which will address the issue of the level of the key rate, scheduled for 28 July 2017.



The Bank of Russia lowered its key interest rate to 9.00% per annum 16.06.2017

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