Russia’s central bank says cuts key rate by 0.25 pp to 6.25%

MOSCOW, Dec 13 (PRIME) -- Russia’s central bank has reduced the key rate by 0.25 percentage points to 6.25% annually as inflation has slowed down faster than expected, the regulator said in a statement on Friday.

“Inflation slowdown is happening faster than was forecasted. Annual dynamics of the consumer price index fell to 3.5% in November from 3.8% in October 2019, and stood at about 3.4% as of December 9. Annual base inflation also contracted to 3.5% in November from 3.7% in October,” the statement read.

Russia’s inflation will amount to 2.9–3.2% in 2019, and to 3.5–4.0% in 2020 after amounting to below 3% in the first quarter of the year, and stay close to 4% after that, the regulator said.

Disinflationary factors had a significant impact on inflation in November. Bumper crop and wider supply at some food markets kept the food prices low, while strengthening of the ruble restricts the growth prices for imports. Limited demand also restricts inflation. Russians’ inflationary expectations continued to contract in November staying relatively high, while pricing expectations of companies remained unchanged.

In the short term, disinflationary risks outweigh pro-inflationary risks due to the condition of internal and external demand.

Monetary conditions continued to soften recently, with the yields on OFZ sovereign bonds and interest rates on deposits and loans decreasing, the authority said.

Growth of Russia’s gross domestic product (GDP) may be closer to 1.3% in 2019 due to higher growth of GDP in July–September. It will gradually speed up to 2–3% in 2022, mainly due to the impact of national projects. Internal demand improved slightly in July–September and in October–December, and investment activity grew. Retail turnover also rose in October, as well as the industrial output.

But business sentiment in the industry is weak especially for export orders, and a low external demand for Russian goods restrains economic activity, the authority said.

The labor market creates no excessive inflationary pressure with unemployment is close to its historic lows due to reduction in employment and workforce. Still, the regulator has to take into account pro-inflationary factors. If the situation develops under the baseline scenario, the authority will consider further reduction of the key rate in January–June 2020.

In its mid-term forecast, the central bank raised its estimate of the net private capital outflow from Russia in 2019 to U.S. $40 billion from $37 billion, but maintained the forecast for 2020, 2021, and 2022 at $20 billion, $15 billion, and $15 billion, respectively.

The regulator also expects lending by Russian banks to individuals to rise 17–20% in 2019 and to companies to grow 5–8% this year.

The forecast for the average annual price of Urals oil was raised to $64 per barrel from $63 per barrel in 2019, but was kept at $55 per barrel in 2020 and at $50 per barrel in 2021–2022.

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