Russian cbank keeps key rate at 10%, to mull new cut in Jan–Jun

MOSCOW, Dec 16 (PRIME) -- The Russian central bank has retained the key rate at 10% and will consider a further reduction in January–June 2017 as soon as the inflation deceleration trend consolidates, the authority said in a statement on Friday.

“The board of directors notes that the dynamics of inflation and economic activity corresponds with the forecast in general. Inflation risks have declined slightly. At the same time, this slowdown of the consumer price growth rates is partially due to the influence of temporary factors and lower inflation expectations remain unstable,” the central bank said.

The central bank estimates annual inflation at 5.6% as of December 12, down from 6.1% in October. The ruble dynamics supported by higher-than-expected oil prices have backed inflation deceleration, together with returning interest of foreign investors to Russian assets. A solid harvest also contributes to a falling inflation.

A more confident price growth deceleration in the non-food segments is needed to attain a stable reduction of inflation.

Russian consumers are increasingly into a saving behavior. A moderately strict monetary policy is needed to consolidate this pattern and also to reduce inflation expectations. The retail lending dynamics does not carry inflation risks at the moment.

The economy is returning to growth with the industrial output rising in October–November but the recovery process is heterogenic across industries and regions.

Russia’s output of products and services is expected to fall 0.5–0.7% in 2016. The gross domestic product (GDP) is to rise by less than 1% in 2017 and by 1.5–2.0% in 2018–2019. This forecast is based on a U.S. $40 per barrel oil price, a moderate capital outflow and retention of all structural limits throughout the timeframe.

The risk of inflation overshooting the central bank’s 4% target has somewhat declined. Price fluctuations on global commodities and financial markets or an increase in state spending amid higher oil prices could result in increased inflation risks.

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