Bank of Russia Retains Key 10.0% Interest Rate

October 28, 2016

Two 50-basis point interest rate cuts have already been implemented this year in June and September on top of 600 basis points of easing done during the first seven months of 2015. A decision at this month’s meeting not to ease further in 2016 is defended, however, on the grounds that a slowdown in inflation lately reflects temporary factors largely such as lower food prices and ruble strength from the partial recovery of oil prices. Domestic demand is starting to revive, so underlying domestic disinflation will be diminishing. Officials believe their moderately tight policy stance is consistent with lowering inflation, now at 6.2% to 4.5% a year from now and the 4% target by end-2017. Expected inflation in the marketplace is higher than the desired path, however, which justifies greater caution in loosening Russia’s interest rate. Officials hope to be in position to resume cuts in the first half of 2017, but that hinges on the evolution of inflation and expected inflation.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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