UPDATE: Cbank says maintains signal of key rate cut

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MOSCOW, Dec 5 (PRIME) -- The Russian central bank maintains the signal that it can consider a key rate reduction, head of the monetary policy department Alexei Zabotkin told PRIME in an interview published on Thursday, adding that the bank prefers to cut the rate in 0.25 percentage point steps.

“Concerning the forthcoming meeting, the signal perhaps stays the same as the one formed by the board of directors in October. I mean, the board of directors will assess whether a further key rate reduction is reasonable,” Zabotkin said. “There is the following assumption: all other things equal, if the situation develops in line with the basic forecast, the central bank’s preference is to adjust the key rate gradually. And therefore, 0.25 percentage points is the preferred mode.”

The central bank last cut its key rate in October, to 6.5% from 7%. The regulator has cut the rate by 1.25 percentage points since the start of the year.

In its latest statement, the central bank said that if the situation develops under its basic scenario, it will assess the possibility of reducing the rate at one of the board of directors meetings. The next meeting will take place on December 13.

Zabotkin said that the latest statistics fit the central bank’s basic forecast revised after the October meeting of the board of directors. Budget spending has accelerated much since September, the real income dynamics is improving which contributes to the rise of inflation, but some of the food markets has a disinflationary power, as well as strengthening of the ruble and deceleration of the retail loan growth.

The central bank has only recently embarked on a neutral monetary policy, Zabotkin said. “In this sense, we emphasize that the economy has entered a phase when it exists in conditions of inflation close to the target of the Central Bank of Russia and with the rest of the features and the key rate close to the level we see neutral. This has just happened, in fact,” he said.

The authority sees a neutral key rate at 6–7% with 4% inflation. It can take years for the estimate to change, he said.

There are no conditions for a mild monetary policy in the Russian economy so far. “If there is a situation when we see that inflation is sustainably below our target in the forecasted period, it will be a reason to consider whether a mild monetary policy is good. There are no such conditions in the economy so far,” Zabotkin said.

He separately said that investment of 1 trillion rubles from the National Wealth Fund into the Russian economy in three years can have a tangible effect but other unpredictable factors are more powerful. “The volume of 1 trillion rubles in three years can have a measurable effect, and yet it is not very big as compared with the other factors of uncertainty.”

The Finance Ministry published on Monday a bill, under which money of the National Wealth Fund exceeding 7% of gross domestic product should be used for export credits and Russian projects. Maximum investment is to be set at ?1 trillion rubles in 2020-2022 with a possible extension after 2022.

(64.1948– U.S. $1)

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