The Bank of Russia lowered the key rate to 8.25%



The Board of Directors of the Bank of Russia 27 October 2017 has decided to lower the key rate by 25 basis points to 8.25% per annum 8.50%. About it reports a Press-service of the Bank of Russia.

The Board of Directors noted that inflation remains close to 4%. The deviation in inflation from the forecast is mainly due to temporary factors. The economy continues to grow. Inflation expectations remain elevated. Mitigation remains fragile and uneven. Medium-term risks of exceeding the inflation targets outweigh the risks of sustainable inflation deviation down. With this in mind, the Bank of Russia will continue to move from moderately tight to a neutral monetary policy gradually.

Deciding on the key rate, the Bank of Russia will assess the balance of risks substantial and sustained deviations of inflation above and below target, as well as the dynamics of economic activity in relation to the forecast. The Bank of Russia admits the possibility of a further reduction in the key rate at the next meeting.

The Board of Directors of the Bank of Russia, taking the decision on the key rate, proceeded from the following.

Dynamics of inflation. The annual inflation rate remains near 4%. According to estimates by 23 October 2017, it was 2.7%. The deviation in inflation from the forecast is mainly due to temporary factors. In September, the decrease in annual growth of food prices was higher than expected due to the increased volume of supply of agricultural products. An additional proposal was due to the growth of productivity and shortage of storage capacity for long-term storage. The slowdown in inflation was also connected with the influence of exchange rate dynamics.

Inflation is about 3% at the end of 2017 and thereafter as of the exhaustion of the influence of temporary factors closer to 4%.

Inflation expectations remain elevated. The decline in inflation expectations remains fragile and uneven.

Monetary conditions create preconditions for the formation of inflation close to 4%, limiting economic growth. Nominal interest rates on banking operations continue to fall under the influence of the dynamics of the key interest rate and expectations of its decline. In real terms, the rates remain positive. Non-price lending conditions is gradually softened to the most reliable borrowers, but remain deterrent.

Current conditions contribute to the preservation of incentives for saving and provide balanced growth of consumption. The gradual easing of monetary policy along with the low risk appetite from banks and borrowers creates the conditions that support a smooth transition from a savings model to an increase in consumption.

Economic activity. According to Bank of Russia estimates, GDP growth in the third quarter continued and corresponded to the forecast. Increased agricultural production, there is a positive trend in the engineering, freight, consumer durables. The recovery of consumption acquires stability. Consumer demand is supported by growth in real wages, helped by slowing inflation. Unemployment is at levels that do not affect inflation.

Assessment by the Bank of Russia of the trajectory of economic development until the end of 2017 in the medium term has not changed.

Inflation risks. A number of factors bears the risk of deviations of inflation both up and down from the target. In the short-term horizon such factor is the change in food prices is influenced by the dynamics of the volume of supply of agricultural products. In the coming months the rate of increase in food prices will largely depend on the quality and safety of a crop. Medium-term risks are associated with the dynamics of prices on world raw materials and commodity markets in case of significant deviations up or down from the background prediction. The implementation of fiscal rules to smooth the impact of external economic environment on inflation and domestic economic conditions in General.

Medium-term risks of exceeding the inflation targets outweigh the risks of sustainable inflation deviation down. The main sources of risks of exceeding the inflation target in the medium term has not changed. First, the increasing structural shortage of labor resources may lead to significant delays in the rate of productivity growth from wage growth. Second, a source of inflationary pressure may be the change of behaviour of households associated with a substantial decrease in the propensity to save. Third, inflation expectations remain elevated and subject to oscillations under the influence of price changes for individual groups of goods and services and exchange rate dynamics.

Taking into account the balance of risks to inflation the Bank of Russia will continue to move from moderately tight to a neutral monetary policy gradually.

Deciding on the key rate, the Bank of Russia will assess the balance of risks substantial and sustained deviations of inflation above and below target, as well as the dynamics of economic activity in relation to the forecast. The Bank of Russia admits the possibility of a further reduction in the key rate at the next meeting.

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 15 December 2017. The time of publication of the press release about the decision of the Board of Directors of the Bank of Russia — 13:30 Moscow time.




The Bank of Russia lowered the key rate to 8.25% 27.10.2017

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