On 12 September 2014 the Bank of Russia Board of Directors decided to maintain the Bank of Russia
key rate at 8.0 percent per annum. In August — early September 2014 the year-on-year consumer prices growth rate increased again due to materialisation of inflation risks associated with aggravation of geopolitical tensions, the imposition of external trade restrictions and the impact of these developments on the ruble exchange rate dynamics. As a result, consumer price growth rate is likely to remain exceeding 7% till the end of 2014. In addition to this, the risks related to possible changes in tax and tariff policy persist. According to the Bank of Russia estimates current monetary policy stance will ensure decline in consumer price growth rate to the target of 4% in the medium run. The Bank of Russia will decide whether it is appropriate to change the key rateconsidering the risks for achieving medium-term inflation target taking into account economic development prospects. If inflation expectations remain at the elevated level and the threat of inflation exceeding the target in the medium-term emerge the Bank of Russia may continue raising the key rate.
The year-on-year consumer price growth rate stood at an estimated 7.7% as of 8 September. Core inflation rose to 8.0% in August 2014. Higher price growth rates for non-food products excluding petrol amounted to 5.3%. At the same time prices growth for non-food items was observed in certain commodity groups of imported goods and was caused by more prolonged than supposed influence of ruble depreciation at the end of 2013 — in early 2014. Inflation acceleration was provoked, inter alia, by the imposition of external restrictions in early August and developed in spite of lower indexation of administered prices and utility tariffs and lower prices for fruit and vegetables due to the new harvest. Given these circumstances inflation expectations of households and firms increased.
Current monetary conditions set the basis for inflation deceleration in the medium run. According to the estimates, the year-on-year the growth rate of money supply decreased from 17.1% on 1 September 2013 to 6.5% on 1 September 2014. Growth of interest rates on household deposits contributes to increase in propensity to save and increase attractiveness of deposits for cash holdings. Given interest rates growth and an increase of requirements to borrowers, lending sees further decrease. At the same time, the lending market adjustment to new market conditions and to the earlier decisions made by the Bank of Russia has not finished yet.
Economic activity remains weak. Anaemic economic growth is mostly caused to a significant degree by structural reasons. Utilisation of productive factors — labour force and competitive productive capacities — is high. However, labour productivity growth is sluggish. Due to the long-term demographic trends labour supply decreases. External political uncertainty has an adverse impact on economic activity along with structural factors. Investment activity remains low amid low business confidence and limited access to long-term financing in both international and domestic markets. At the same time the rate of decrease in fixed capital investments is slowing down. Consumer activity sees gradual decline amid the slowdown in real wages growth and the saturation of consumer lending market. Economic slack in most countries that are Russia’s trading partners restrains the economic growth in Russia. At the same time oil prices remains high even after resent decline, thus supporting the national economy . In the second half of 2014 further slowdown in economic growth is expected amid the imposition of sanctions against Russian companies and the remaining uncertainty. According to the Bank of Russia estimates, the year-on-year GDP growth rate is to decline to 0.2% in 2014 Q3 and amount to 0.4% as of the end of 2014.
Should the external political situation normalize, economic uncertainty decrease and expectations of economic agents improve, investment activity will see gradual recovery. Consumer demand growth will stabilise at a lower level. Net export contribution to GDP growth will stand close to zero. According to the Bank of Russia estimates, GDP growth rate in 2015 will amount to 0.9-1.1%.
Consumer price growth rate with high probability is likely to remain exceeding 7% till the end of 2014. Further inflation dynamics will be determined, inter alia, by the speed of adjustment of the economy to the imposed restrictions. The increase in consumer prices growth caused by the aforementioned factor is unlikely to be protracted. In the absence of negative shocks, decline in inflation and inflation expectations is expected to resume in the first half of 2015 as the impact of the mentioned restrictions on prices is exhausted. Subdued aggregate demand along with total output of goods and services remaining slightly below potential will also facilitate inflation reduction. Current monetary policy stance will ensure deceleration of inflation to the target of 4% in the medium term.
The next meeting of the Bank of Russia Board of Directors on the key rate is scheduled for
31 October 2014 The press-release on the Bank of Russia Board of Directors’ decision is to be published at 13:30 Moscow time.
Interest rates on the Bank of Russia major operations1
||Type of instrument
||Rate since 28.04.14
||Rate since 28.07.14
||Standingfacilities (fixed interest rates)
||REPO; Overnight loans; Lombard loans;Loans secured by gold; Loans secured by non-marketable assets and guarantees; FX swaps (ruble leg)
|Open market operations (minimum interest rates)
||Loans secured by non-marketable assets, auctions2
||from 1 to 6 days3, 1 week
||7.50 (key rate)
||8.00 (key rate)
||Open market operations (maximum interest rates)
||from 1 to 6 days3, 1 week
|Standing facilities (fixed interest rates)
||1 day, call
1 Complete information on interest rates on the Bank of Russia operations is given in the Table
Interest rates on the Bank of Russia operations.
2 Floating interest rate linked to the level of the Bank of Russia key rate.
3 Fine-tuning operations.
Information notice ‘On the procedure for conducting fine-tuning operations’
Information notice ‘On fine-tuning operations to absorb liquidity’.