The Central Bank this year will switch the bet to “neutral”
The main intrigue of the March meeting of the Board of Directors of the Bank of Russia was not itself the reduction of the key rate by 0.25 percentage points, and the controller signal about a more rapid transition to a neutral policy already this year.
The head of the Central Bank Elvira Nabiullina warned that this transition will be smooth, with possible pauses, and analysts believe that the rate by year-end will stay closer to the upper boundary of the range of 6-7%. The Bank of Russia lowered its key rate by 0.25 percentage points to 7.25% per annum
“The level of the key rate gradually approaching that range, which we have designated as neutral. That is, one where monetary policy contributes neither to lower, nor higher inflation relative to the target level… We expect to complete the transition to a neutral policy this year,” he said after meeting Elvira. In the future the range of the neutral rate can vary depending on certain factors.
Analysts felt the decision to lower the rate to 7.25% balanced, although he noted that inflation allowed the Central Bank to make a more decisive step, but he was stopped by increased volatility and uncertainty in global markets.
“Action is correct. With the current level of inflation and a depressed demand in the economy, it was possible to reduce by 50 basis points, but the Central Bank preferred a gradual and orderly quick “blow by gas” – confirms the chief economist of “Expert RA” Anton tabah.
Annual inflation in Russia in February remained at January’s 2.2%. According to the forecast of the Central Bank, annual inflation in Russia by 2018 will amount to 3-4% and will be close to 4% in 2019.
Nabiullina has paid attention to external factors. In its opinion, increasing protectionism from the US can affect the growth of the global economy, although a direct effect on the Russian economy from those of United States measures trade policy is very limited.
The theme of protectionism flared up again after US President Donald trump in March signed a decree on introduction of import duties on steel and aluminum in 25% and 10%, respectively, including China and Russia. The Bank of Russia lowered its key rate by 0.25 percentage points to 7.25% per annum
“Increased the risks associated with the situation in global markets. the Revision of market expectations can be accompanied by volatility spikes, as in February of this year. A specific concern is the growth of protectionism in world trade, which could affect global economic growth,” she stated.
“The growth of external volatility and geopolitical uncertainty somewhat limits the potential to reduce rates,” shares this position, chief analyst of ROSBANK Eugene Koshelev.
“The Central Bank decision was aimed primarily at balancing internal and external impulses, and the rate key rate can be considered adequate. We are dealing with increased external risks, volatility of world markets and accession to them of protectionist tendencies” – according to chief economist of the Eurasian development Bank (EDB) Yaroslav Lissovolik.
“Probably at the next meeting of the Central Bank will decide to lower rates by another 25 points, then maybe the Bank of Russia will take a break. This will contribute to increased geopolitical risks and a possible increase in budget expenditures. Overall, we expect the key rate at 6.75 percent at the end of the year”, – believes Konstantin Kochergin from the Bank “East”.
TO REACH A NEW LEVEL
CB has yet to find the level of the key rate, which will stop the cycle of decline while the potential for reduction is. “We are in our decisions, in any case, we stick to the principle of smoothness and predictability… But we do not exclude none stop at some point, a step of 0.25 or 0.5 step”, said Nabiullina.
Most experts believe that the regulator will lower the interest rate to the neutral level before the end of the year, the question is, to what extent.
Central Bank report on monetary policy, released on Friday, also expects growth in budget expenditures after the formation of the new government, however, the impact of this factor on inflation will be limited.
“We expect to continue cutting rates in the second half of 2018, and is expected to decline by 25 basis points on the results of meetings in April and June. However, we believe that the Central Bank will stop the cycle of decline after reaching in June the rate to 6.75%,” – said the chief economist for Russia and CIS “Renaissance Capital” Oleg Kuzmin. The Bank of Russia carefully sneaks up to the equilibrium rate
“According to our estimates, this year on the remaining three support meetings have two or three down 0.25 percentage points. That is more or less confident you can expect to 6.75% by the end of the year”, – said the expert rating Agency ACRES Dmitry Kulikov.
The head of the Duma Committee on Finance Anatoly Aksakov expects from the regulator bolder steps, and expects that this year the rate will approach 6%.
At the same time, Lissovolik less optimistic. “Assume that in the near future, the Central Bank will take a pause and be more careful. Access to the equilibrium rate for next year. I think that this year, the transition to the neutral rate will not be completed”, – concluded the economist.