UPDATE: Russian central bank raises key rate to 7.5% from 7.25%
(Adds comments by the central bank chairwoman after paragraph 5)
MOSCOW, Sep 14 (PRIME) -- The board of directors of the Russian central bank has raised the key rate by 0.25 percentage points to 7.5% annually, the authority said in a statement on Friday.
“Changes in external conditions observed since the previous meeting of the board of directors have significantly increased pro-inflationary risks. The central bank forecasts annual inflation to be 5–5.5% in 2019 and return to 4% in 2020. This forecast takes into account the decisions taken with regard to the key rate and to the suspension of foreign currency purchases in the domestic market under the budget rule.”
Capital outflow due to changed external conditions triggered weakening of the ruble, and this was one of the factors accelerating inflation, as well as the increase in food price growth on low base effect and the balance of supply and demand in certain food markets. Consumer prices grew 3.1% in August, slightly more than the upper margin of the central bank’s forecast.
Inflation expectations of people and companies were elevated due to volatility of the national currency.
Gross domestic product (GDP) grew 1.9% in April–June, in line with the central bank’s expectations. The regulator has retained its GDP forecast for 2018 at 1.5–2.0%. The forecast for 2019 is 1.2–1.7%.
KEY RATE RAISE NOT NECESSARY START OF UPWARD CYCLE
Chairwoman of the central bank Elvira Nabiullina said that the key rate increase is not the start of an upward dynamics cycle. “We do not rule out the possibility of raising the rate, but only in case if the risks we were talking about fulfill themselves. This will probably not happen, and we will not say that this is the start of rate growth.”
The current key rate qualifies the central bank’s monetary policy as neutral.
Nabiullina said that the contribution of weakening of the ruble to annual inflation will amount to 0.9 percentage points. Inflation is expected to peak at 5.5–6.0% in January–June 2019.
The central bank has raised its forecast for the current account surplus in 2018 to U.S. $98 billion from $85 billion, or to about 6% of GDP. The forecast for 2019 is $45–50 billion, or 3% of GDP.
The forecast for Russia’s net capital outflow for 2018 was raised to $55 billion from $30 billion; it stands at $27 billion for 2019 and and at $18 billion for 2020–2021.
The GDP growth forecast for 2020 was raised to 1.8–2.3% from 1.5–2.0%.
Oil prices can remain at the current level for a long time and will gradually fall to $55 per barrel in 2020–2021.
Non-residents have withdrawn about 480 billion rubles from Russian state bonds and their share was 26.6% as of the start of September. The yield curve of the state bonds has changed, and some banks have started to raise loan and deposit rates in order to be ready for the key rate growth.
The banking sector is witnessing no liquidity issues and there is no need to use foreign currency repo.
Russians’ foreign currency deposits amount to $87 billion and are running no risks.
The central bank sees no bubble on the mortgage market. Mortgage rates can fall to 7–8% in the medium term.
In case of new sanctions, the central bank is ready to support banks, including by introduction of regulatory incentives. No big problems are expected in case of U.S. sanctions against the Russian state debt.