On 30 January 2015, the Bank of Russia Board of Directors decided to reduce
the key rate from 17.00 to 15.00 percent per annum due to the shift in the balance of risks of accelerated consumer price growth and cooling economy. The decision to dramatically raise the key rate taken by the Bank of Russia on 15 December 2014 resulted in stabilisation of inflation and depreciation expectations to the extent the Bank of Russia expected. The current surge of inflation is driven by the accelerated price adjustment to the ruble depreciation being time-limited. Further the inflation pressure will be contained by decrease of economic activity. According to Bank of Russia forecast, consumer price growth will be lower than 10% in January 2016.
According to the results of the year 2014, inflation totaled 11.4% while core inflation was 11.2%. Meanwhile, in December 2014, monthly consumer price growth was 2.6% amid considerable ruble depreciation, growing inflation expectations and increased consumer demand for non-food items. As of 26 January, annual consumer price growth rate was 13.1%. According to Bank of Russia estimates, monthly consumer price growth will moderate slightly in January 2015, but annual inflation will continue the upward trend with a peak in the Q2 of 2015.
Current monetary conditions set the ground for inflation decline in the medium run. Annual money supply (M2) growth rate decreased considerably. Significant growth of interest rates on household deposits will stimulate the propensity to save and increase the attractiveness of deposits. Given lending rates hike and tighter borrower and collateral requirements, lending growth (adjusted for currency revaluation) slowed down.
Certain increase of economic activity in December 2014 was driven by temporal
factors, including growing demand for durable goods amid higher inflation
expectations on the back of more rapid exchange rate pass-through. According to Bank
of Russia estimates, the annual real GDP growth rate for the year 2014 will
amount to 0.6%. Further substantial decrease of output is expected amid the
deterioration of external conditions resulting from oil price drop and foreign
financial markets inaccessibility for Russian borrowers. Amid the increase in prices
for the imported investment goods, deterioration in financial performance of companies,
persistently limited access to long-term financing, and tighter lending
conditions, fixed capital investments will continue to contract. Real wage
decrease and a slowdown in retail lending growth will result in lower consumer
demand. The negative impact of deteriorated external conditions will be only
partially mitigated by the exchange rate dynamics. According to Bank of Russia
estimates, annual GDP growth will amount to (-3.2%) in the first half of 2015.
The ruble depreciation will further affect the prices of goods and services contributing to the likely increase in annual inflation in the next months. Nevertheless, inflation and inflation expectations are forecasted to decrease as the economy gradually adjusts to changing external conditions and the impact of the exchange rate dynamics on prices exhausts. Slowdown in consumer price growth will be facilitated by subdued aggregate demand with total goods and services output remaining below the potential as well as by slightly tight fiscal policy. Inflation is expected to be lower than 10% in January 2016.
The next meeting of the Bank of Russia Board of Directors on the key rate is scheduled for
13 March 2015. 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 16.12.14
||Rate since 02.02.15
||Standing facilities (fixed interest rates)
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
||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’.