The Central Bank lowered its key rate to 7.25% per annum
The Bank of Russia at the meeting of March 23, 2018 decided to lower its key rate by 0.25 percentage points to 7.25% per annum. Monetary policy of the regulator continues to soften. In the accompanying press release notes: “Assessment by the Bank of Russia set of risks for inflation also did not change significantly, with the exception of risks from the labour market. The dynamics of wages and unemployment creates the preconditions for the possible increase in proinflationary pressure.”
At first glance, even the new rate is excessively high in terms of a record in the history of Russian inflation slows to 2.2% year-on-year, with an announced long-term target CBR of 4%. But “tight” monetary policy that slows economic growth and pressure on real incomes, is largely a forced measure.
In Russia the characteristic feature of the consumer basket is relatively large, the proportion depending on the seasonal product pricing power and steadily rising in price of services of state monopolies (utilities, transport, communications). In addition, households have retained residual memories of the inflationary shock in 2014-2015, after an unexpected devaluation.
It is not surprising that polls of Fund “Public opinion” consistently demonstrate inflation (9.4% in February), significantly higher than the actual values of the index according to Rosstat. The decline here is much slower. Meanwhile, if the Bank of Russia to lower rates, but will not solve the problem with high inflation expectations, then inflation will not last long at historic lows and quickly go above the long-term target of 4%.
We predicted that during 2018 the key rate of the Bank of Russia will demonstrate a gradual but steady decline. In particular, the results of the remainder of this year six meetings of the indicator reaches the level of 6.5-6.25% per annum, which implies monetary policy easing at every second “support” meeting. Following the regulator’s decision on the key rate will be released on April 27.