Russian central bank keeps key rate at 11% annually

MOSCOW, Mar 18 (PRIME) -- The Russian central bank has maintained its key rate at 11%, because despite some stabilization on financial and commodity markets and lower inflation, inflation risks are still high on the back of low oil prices, high inflationary expectations and some uncertainty in budgeting, the regulator said in a statement.

Excessive oil supply, China’s economic slowdown, rising Iranian oil exports and tougher competition for a market share may depress oil prices, which have been rising in recent weeks. The central bank expects that the oil price will average U.S. $30 per barrel in 2016 and rise gradually to $40 per barrel by 2018.

INFLATION

Russian inflation is likely to slow down in April–June as compared with January–March, but may accelerate in mid-2016 due to a low base effect. After that inflationary expectations will decline and inflation will slow down on the back of a weak consumer demand, if the economy faces no new shocks, the regulator said.

Russian consumer prices rose 7.9% on the year as of Monday compared with a 9.8% rise in January. The central bank expects inflation to stand at 6% in March 2017 and fall to a target of 4% in 2017.

Government’s decisions concerning pensions and salaries to public employees, as well as falling global food prices are also limiting consumer prices’ growth. The central bank plans to maintain a “moderately tight” monetary policy longer.

At the same time, Russian banks’ refinancing needs are falling, while the authorities finance budget deficit from the Reserve Fund, so the central bank’s monetary policy is easing because the liquidity deficit of the banking system is shrinking, although the key rate was kept.

GDP FALL TO SLOW DOWN

The current Russian economic fall is lower than expected because a floating ruble partially offsets external pressure, and is likely to slow down to 1.3–1.5% of Gross Domestic Product (GDP) in 2016. The economy is likely to adjust to global raw material prices further, the regulator said.

The depreciation of the ruble increased competitiveness of national products and promoted economic growth in a range of branches, including the agriculture and food industry, chemical industry and production of natural resources.

Import substitution will increase and a growing share of manufactured products in Russian exports will promote a further revival of the economy, the regulator said.

Russia’s GDP is likely to rise in late 2016 – early 2017 in quarterly terms.

The central bank’s board of directors will meet to discuss the key rate on April 29 and the regulator will publish the results of the meeting at 1:30 p.m. Moscow time.

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