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Russia Central Bank Cuts Key Rate By 150 bps To 12.50% Citing Risk Of "Considerable Economy Cooling"
The days when Russia scrambled to prevent the plunge in its currency in December of 2014, pushing its interest rate to an eye watering 17%, are now a distant memory: moments ago, the CBR announced that following the most recent cut from 15% to 14% on March 13, it once again cut rates by a greater than consensus 150 bps, to 12.50%. The majority of analysts, or 25 of 40, had expected a cut to only 13.00%.
The reason for the bigger than expected cut: "lower inflation risks and persistent risks of considerable economy cooling. Amid ruble appreciation and significant contraction in consumer demand in February-April 2015, monthly consumer price growth declines and annual inflation tends to stabilise."
The immediate reaction has seen the USDRUB retrace some of its losses suffered earlier today.
On 30 April 2015, the Bank of Russia Board of Directors decided to reduce the key rate from 14.00 to 12.50 percent per annum, taking account of lower inflation risks and persistent risks of considerable economy cooling. Amid ruble appreciation and significant contraction in consumer demand in February-April 2015, monthly consumer price growth declines and annual inflation tends to stabilise. According to the Bank of Russia forecast, consumer price growth will slow down faster than expected. Annual inflation will fall to less than 8% in a year (April 2016 on April 2015) and to the target of 4% in 2017. As inflation risks abate further, the Bank of Russia will be ready to continue cutting the key rate.
According to Bank of Russia estimates, as of 27 April, annual consumer price growth rate stood at 16.5%. High rates of annual inflation are conditioned primarily by short-term factors: ruble depreciation in late 2014 — January 2015 and external trade restrictions. Meanwhile, monthly consumer price growth is estimated to have declined on the average to 1.0% in March-April from 3.1% in January-February, and annual inflation tends to stabilise. Lower consumer demand amid contracting real income and ruble appreciation in the recent months curbed prices. Inflation expectations of the population decreased against this backdrop.
Current monetary conditions also facilitate the slowdown in consumer price growth. Money supply (M2) growth rate remains low. Lending and deposit rates are adjusted downwards under the influence of previous Bank of Russia decisions to reduce the key rate. However, they remain high, on the one hand, contributing to attractiveness of ruble savings, and, on the other hand, alongside with tighter borrower and collateral requirements, resulting in lower annual lending growth.
The dynamics of the major macroeconomic indicators show a considerable GDP contraction in 2015 Q1. Though structural factors continue hampering the economic growth, output contraction is currently mostly of cyclical nature. It is attested, among other things, by the on-going decline in production capacity and labour force utilisation, and a certain rise in the unemployment rate. According to Bank of Russia estimates, the labour market adjusts to the new conditions mostly through wage decrease and part-time employment. These factors, alongside with a decrease in retail lending, will result in further decline in consumer activity. Fixed capital investments will continue to contract due to persistently high economic uncertainty, deterioration of companies’ financial performance, tighter lending conditions, limited ability to replace foreign sources of funding with domestic ones given shallow Russian financial market, as well as high prices for imported investment goods. Sluggish domestic demand will contain imports. Net exports will be the only factor to make a positive contribution to the output growth. These factors will lead to a fall in GDP in 2015. Later on, as import substitution expands, sources of funding gradually diversify, lending conditions ease, and oil prices rise to some extent, the quarter-on-quarter GDP growth is expected to recover.
Thus, the current economic conditions will contribute to inflation decline. The ruble appreciation will have additional restraining influence on consumer prices. Inflation, both monthly and annual, is expected to gradually decline. A slowdown in consumer price growth will make room for inflation expectations decrease. According to the Bank of Russia forecast, annual inflation will slow down to less than 8% in a year and to the target of 4% in 2017.
Inflation risks emanate primarily from persistently high inflation expectations, aggravation of external economic situation, revision of planned increases in administered prices and tariffs, fiscal policy easing, and accelerated growth in nominal wages, including those in the public sector. As inflation risks abate further, the Bank of Russia will be ready to continue cutting the key rate.
The next meeting of the Bank of Russia Board of Directors on the key rate is scheduled for 15 June 2015. The press release on the Bank of Russia Board of Directors’ decision is to be published at 13:30, Moscow time.
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don't they know ZIRP is the way to go?
Don't be surprised if Russia halves its new current rate within the next 12 months. The USSA attack against the Ruble failed to dislodge Putin.
If you follow the rule of law, "The Fed, alway wrong but never in doubt", you would do the opposite of anything Washington does, hence, rising rates.
indeed. and their savers can go buy gold shipped in from western vaults with the huge interest they earn on their accounts
Their rates are high in order to attract investment and prop up the Ruble from further collapse.
You have to invest in Rubles to take advantage of the rates and you better not be living in Russia, the US has seen these rates before and the people get squashed, doesn't matter what country you live in.
Yeah, that grumbling sound is the sound of Russians who want to buy houses and cars but run up against the interest rate wall. Putin caught some flak for this in his Q and A session, and I think Ms. Nabbie got the memo. Russia has done well with the contrarian strategy, but it's not easy walking the razor's edge.
Fortunately for Putin, the Ukrainian Civil War has done wonders to support his popularity. Seeing endless clips of artillery barrages and civilian casualties, courtesy of the US state department, reminds russians of how bad it can really get.
I still love interest.
12.5%? What are they trying to do? Turn that place into Japan or something?
we are still living in dollar system
Could you just imagine what would happen if the FED "cut" rates up to 12.5% ?? Hahahahhahaha Oh the humanity !
You could call it a negative cut rate, sounds like everyone is getting a deal, and who doesn't want a deal?
Damn! Double digit rates. When was the last time we say these in the western world?
70's
that would be the mid '70s to Jan 1990... kicked off under President Ford's WIN (Whip Inflation Now) initiative and brought to a head under Volcker during the Reagan '80s...
yes kids, the ol' turtle lived through the years of record prime rate... it was awesome if you were young and a saver, it was miserable if you had any loans to speak of at all... I can say getting double digit rates on CDs was a-ok by me, made that paper route money go a loooong way in college...
Let's not forget the price of oil has come back up and has propped up the ruble. If anyone thought Saudi dumping would slow Russia down for long, they were wrong.
My diagnosis for higher bund yields? Someone's figured out the Fourth Reich is going to lose the rematch too :D
On to Frankfurt!
Glory to Russia and Vladimir Vladimirovich Putin!
Direct opposition to reality
U.S. Starwood Luxury Hotels Opens Its First-ever Moscow Resort
NY Botique Watchmaker Seize sur Vingt Opens Moscow Store
UK Hamley’s Toy Store Opens Flagship Outlet……in Moscow
French DIY Retailer Leroy Merlin To Increase Store Openings in Russia As Revenue Increased 30% in 2014
Ford Expands in Russia As It Buys Sollers
Now that OIL price is back on its tracks
did you seriousy thought you could take Putin down with that ease ?
I'm westerner but I dispise more and more this secrets wars of CIA, NSA, MI5 and all the motherfuckers I HAVE NEVER VOTED FOR BUT CONTROL (TRY) THE WORLD
I DIPISE THEM ALL, AND NOW I ONLY VOTE FOR FAR RIGHT !
If only our Fed were as straightforward in their discussion! It seems the Russians are expected to actually understand economics and monetary policy.
The truth about the conflict with Russia >> http://wp.me/p4OZ4v-1Gm