Russian cbank cuts key rate by 0.25 pp to 6% annually

MOSCOW, Feb 7 (PRIME) -- Russia’s central bank has cut the key rate by 0.25 percentage points to 6% annually amid a faster than forecasted slowdown of inflation and risks of a significant slowdown of the global economy, the authority said in a statement on Friday.

The central bank does not rule out a further reduction of the key rate at the next several meetings if the situation unfolds in line with the basic forecast.

“The inflation deceleration is happening faster than forecasted. People’s inflationary expectations and price expectations of companies have remained stable in general. The rate of the Russian economy’s growth accelerated in the second half of 2019. The risks of a significant slowdown of the global economy remain,” the central bank said.

Inflation fell to 2.4% in January from 3.0% in December 2019 because of discontinuation of the factor of value-added tax (VAT) growth and due to a moderate price increase in January. The annual core inflation declined to 2.7% in January after 3.1% in December.

The disinflation factors significantly influenced inflation in January as annual growth of food and non-food prices continued to decrease. Extension of the offer on some food markets favored continuation of low food price growth. Strengthening of the ruble that occurred in 2019 and deceleration of inflation in the countries trade partners limited growth of prices on imported goods. The influence of limited demand on inflation, including foreign, remained.

The central bank forecasts 3.5–4.0% inflation in 2020 and 4% inflation after 2020. Disinflation risks prevail over the inflation risks in the short term due to the domestic and foreign demand trends. But changes on the food market can cause a pro-inflation effect, while easing of the monetary policy by the central bank can have a more pronounced effect than expected.

Elevated and unanchored inflationary expectations remain another pro-inflation risk. The patterns of the state budget policy with planned investment of the liquid part of the National Wealth Fund can influence the medium-term inflation trend.

According to the Federal State Statistics Service, the gross domestic product (GDP) grew 1.3% in 2019, which met the upper bracket of the central bank forecast of 0.8–1.3%. Spending on end consumption was the greatest contributor to the GDP rise in 2019, while a decline of the physical amount of exports reduced the GDP rise.

Economic activity continued to improve in October–December but the leading indicators point to the remaining weak business confidence in industry, first of all in exports. Lower foreign demand on the back of slower global economic growth is still influencing foreign demand for Russian exports.

The central bank has retained the GDP forecast for 2020–2022. The outlook for 2020 is 1.5–2.0% and for 2022 2–3%.

The situation with coronavirus is an additional factor of economic uncertainty, the central bank said.

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