Доклад о денежно-кредитной политике

SEPTEMBER 2019

Monetary Policy Report

The key rate is down to 7% p.a.

The 2019 inflation forecast
is revised downwards
to 4-4.5%

If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at one of the upcoming Board of Directors’ meetings

When making its decision to cut the key rate, the Bank of Russia considered the following factors:

1
Inflation
has approached 4%

Inflation, YoY and BoR key rate, % per annum

Annual inflation fell to 4.3% in August

The majority of inflation indicators reflecting the most sustainable price movements are close to 4%

According to the Bank of Russia forecast, inflation will drop to 4-4.5% in 2019 and hold near 4% thereafter

2
Inflation expectations remain elevated

Household’s inflation expectations, observed inflation and inflation, YoY

Households’ inflation expectations fell to 9.1% in August, but hold above the early 2018 lows

Business price expectations showed mixed dynamics amid August ruble depreciation.

3
Russian economic growth forecast revised downwards

GDP growth forecast in the baseline scenario, % YoY
Source: Rosstat, Bank of Russia forecast

The Bank of Russia revised downwards its 2019 GDP growth forecast to 0.8-1.3%, given that economic activity had been slack since the beginning of the year

The expected slowdown in the global economy also triggered a downward revision of Russia’s economic growth in 2020-2021.

Economic growth might accelerate to 2-3% by 2022 should the Government's measures for overcoming structural constraints, including the implementation of national projects be realised

4
Monetary conditions continued to soften

OFZ yields and the Bank of Russia key rate, %

Both previous and September key rate decisions will underpin this trend.

Downward revisions of foreign interest rates also make their contribution.

The easing of both price and non-price monetary conditions contributes to expansion in lending.

5
Disinflationary and pro-inflationary risks are balanced till the end of the year

Disinflationary factors are primarily related to the weak dynamics of domestic and external demand.

Growth in budget spending in 2019 H2 – early 2020 will potentially be more distributed over time, which lowers pro-inflationary risks posed by this factor.

At the same time, should global economic slowdown be more pronounced, including due to tightening international trade restrictions and on the back of other geopolitical factors, this might lead to strengthened volatility in global commodity and financial markets, affecting exchange rate and inflation expectations.

 

The Bank of Russia key rate is within the range considered by the Bank of Russia as a neutral rate range

The key rate has reached the upper bound of the Bank of Russia's range of neutral rate values: 6-7% p.a. in nominal terms (which corresponds to 2-3% p.a. in real terms and 4% expected inflation).

That said, the neutral key rate estimate is not a ‘point’, but a range of values. It depends on a wide range of factors and may change over time. Therefore, it will take time to determine the bounds of this neutral range more accurately.

If the situation develops in line with the baseline forecast, the Bank of Russia will explore the need for a further key rate reduction at one of the upcoming Board of Directors’ meetings.