A 25-Basis Point Cut in the Bank of Russia’s Main Interest Rate to 7.5%
February 12, 2018
During calendar 2017, a combination of three 50-basis point central bank interest rate reductions including one in December and three other cuts of 25 basis points lowered the rate to 7.75% from 10.0%. For this year’s first easing, officials chose a 25-basis point increment but released a statement that observed a significant current shortfall of inflation, which was 2.2% in January versus a medium-term target of 4.0%, and implied that more reductions this year are on the way as policy switches from restrictive to neutral.
Annual inflation remains sustainably low. Inflation expectations are diminishing progressively. Short-term pro-inflationary risks have abated. Therefore the balance of inflationary and economic risks has shifted slightly towards the risks to economic growth. The uncertainty over the situation in global financial markets has increased. This year annual inflation is much less likely to exceed 4%. In this environment the Bank of Russia will continue to reduce the key rate and may complete the transition from moderately tight to neutral monetary policy in 2018.
But 2019, the probability of above-4% inflation is apt to be again higher than the likelihood that such lies below the target. But the priority now is to promote growth rather than address this later development.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Russia
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