The Banks of Russia has retained its key rate at 11.00% p.a.

On 29 April 2016, the Bank of Russia Board of Directors decided to keep its key rate at 11.00% p.a. The Board of Directors sees the positive processes of inflation slowdown and inflation expectations decline, as well as shifts in the economy which anticipate the beginning of its recovery growth. At the same time, inflation risks remain elevated. These risks primarily stem from slowly declining inflation expectations against the target, uncertainty in parameters of the national budget, and ambiguity of the observed movements in nominal wages. Moving forward, should inflation risks fall as much as to ensure with greater certainty that the Bank of Russia achieves its inflation target, the Bank of Russia will resume a gradual lowering of its key rate at one of its forthcoming Board meetings. The Bank of Russia predicts, consistent with the decision, the annual inflation to stand at about 5% in April 2017, to reach the 4% target in late 2017.

In making its key rate decision, the Bank of Russia Board of Directors has proceeded from the following factors.

First. Inflation fell perceptibly; however, the trend bears risks of instability. Slower consumer price growth is triggered by weak demand and gradually descending inflation expectations, driven by, inter alia, the moderately tight monetary policy. Meanwhile, the factors, which are likely to have a temporary impact, have also made a considerable contribution to inflation reduction. They include the Government’s decisions on indexation of wages, pensions, administrated prices and tariffs, as well as a drop in global food prices.

Under the Bank of Russia estimates, the annual consumer price growth rate is down to 7.3% as of 25 April 2016 / as of 25 April 2016 remained at the level of March 2016 of 7.3%. This is in line with the inflation forecast for the year ahead, which the Bank of Russia published in its April 2015 press release (below 8%). In mid-2016, the annual consumer price growth is likely to accelerate temporarily owing to the low-base effect of the previous year. However, further on inflation will continue to go down. The Bank of Russia predicts, consistent with the decision, the annual inflation to stand at about 5% in April 2017, to reach the 4% target in late 2017.

Second. Key macroeconomic indicators show higher resistance of the Russian economy to fluctuations in oil prices. The floating exchange rate partially sets off the negative impact of external shocks. The development of import substitution and expansion of non-commodity exports make a positive contribution to industrial production dynamics. Capacity utilisation indicators have improved. The on-going shifts in the economy anticipate the beginning of its recovery growth. Quarterly GDP growth is expected to reach positive territory in 2016 H2 — early 2017.

Third. Interest rates in the economy are set to decline further even with the key rate unchanged. This is mainly driven by the planned Reserve Fund spending to finance the budget deficit and the ensuing changeover in the banking sector to a liquidity surplus.

Fourth. There remain elevated inflation risks. These primarily stem from slowly declining inflation expectations against the inflation target, mixed data on movements being observed in nominal wages, uncertainty in parameters of further wages and pensions indexation, and from the absence of mid-term budget consolidation strategy. Due to the continued supply glut in the oil market, the risks of crude prices dropping and their negative pressure on exchange rate and inflation expectations remain high enough.

Moving forward, should inflation risks fall as much as to ensure with greater certainty that the Bank of Russia achieves its inflation target, the Bank of Russia will resume a gradual lowering of its key rate at one of its forthcoming Board meetings.

The Bank of Russia Board of Directors will hold its next rate review meeting on 10 June 2016. The press release on the Bank of Russia Board decision is to be published at 13:30, Moscow time.

Interest rates on the Bank of Russia’s major operations¹
(p.a.)

¹Information on interest rates on all 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’

⁴ The Bank of Russia Board of Directors decided to equate from 1 January 2016 the refinancing rate with the Bank of Russia key rate set as of the respective date. Starting from 1 January 2016, the independent value of the refinancing rate will not be set.

Refinancing rate values prior to 1 January 2016.

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