Another Tightening of Russian Monetary Policy

April 25, 2014

Officials at the Central Bank of the Russian Federation raised their one-week auction rate to 7.5% today and indicated that a cut in coming months is not in the cards.  This tightening of monetary conditions follows a 150-basis point hike on March 3 and comes amid accelerating inflation and a mounting risk of rising inflation expectations.  Russia is caught in a vicious cycle of reinforcing currency depreciation and accelerating inflation of its own making caused by President Putin’s adventurous acquisition of Ukraine territory.  Total and core CPI on-year advances have risen to 7.2% and 6.0%.  A statement released by bank officials noted that “the current economic slowdown is predominantly structural by nature and thus does not exert any noticeable downward pressure on inflation.”  In short,

The probability of inflation exceeding the 5.0% target at the end of 2014 has increased substantially. This has been caused by more pronounced than expected pass-through effect of the exchange rate dynamics on consumer prices, the rise in inflation expectations, as well as unfavorable conditions in the markets for some goods. The Bank of Russia does not intend to lower the key rate in the coming months. The Bank of Russia estimates that the adopted decision would ensure the decline in inflation to no more than 6.0% by the end of 2014.

The next policy meeting is scheduled for June 16.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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