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The Bank of Russia keeps the key rate at 7.25% p.a.

27 April 2018
Press release

On 27 April 2018, the Bank of Russia Board of Directors decided to keep the key rate at 7.25% per annum. Annual inflation remains low. The April weakening in the ruble against the backdrop of geopolitical tension will be a factor for consumer price growth paces to quicken as they move closer to 4%. However, this does not create risks of inflation overshooting the target. At the same time uncertainty remains over the potential impact of the recent developments on inflation expectations. Inflation is forecast to range between 3–4% as of the end of 2018 and hold close to 4% in 2019.

The Bank of Russia still assumes that monetary policy will become neutral in 2018. At the same time, the Bank of Russia considers that the potential key rate reduction intended to bring about neutral monetary conditions has decreased given the rise in interest rates across advanced economies and country risk premium growth for Russia. Moving forward, in its decision-making the Bank of Russia will be guided by assessments of inflation risks, inflation dynamics and economic developments against the forecast.

In making its key rate decision, the Bank of Russia recognised the following factors.

Inflation dynamics. Inflation remains low, driven by long-term factors including, in the first place, a moderate recovery in domestic demand.

Consumer prices grew at the pace of 2.4% in March, and consumer price growth in April is estimated at 2.32.5%. The recent weekly data on inflation are indicative of a still feeble response of consumer prices to the ruble weakening. The gradual depletion of the past year’s vegetable stocks and the related growth in imports contributed to an expected slight increase in both monthly and annual inflation between March and April, relative to February.

In March, household inflation expectations dropped to a historical low of 7.8%. That said, uncertainty is in place over how inflation expectations will respond to the April developments in financial markets.

The Bank of Russia estimates that the ruble weakening will quicken inflation movement to 4% without the risks of overpassing this level, unless the external environment changes considerably. Inflation is forecast to range between 34% as of the end of 2018 and hold close to 4% in 2019.

Monetary conditions. The Bank of Russia’s estimates suggest that the potential for key rate reduction to shape neutral monetary conditions shrank somewhat. As the country risk premium increased and interest rates were revised upwards in advanced economies, the estimated neutral interest rate has shifted closer to its upper bound within the range of 67%.

Economic activity. Business activity keeps on expanding and is hardly posing any disinflationary pressure on consumer price movements. This paves the way for inflation to return to 4%. Output growth continued throughout March, including industrial output, and capacity utilisation increased. Unemployment was close to its natural level. Economic activity is backed up by gradually recovering consumer demand as wages are growing and retail lending is expanding.

GDP growth rate is estimated at 1.31.5% in the first quarter and 1.5-2% as of the end of 2018, which is in line with the potential economic growth rate.

Inflation risks. The Bank of Russia registers a rise in inflation risks triggered by some internal and external factors. First, geopolitical factors and accelerated yield growth in advanced economies may cause surges in volatility in financial markets and affect expectations for the exchange rate and inflation. Furthermore, uncertainty still persists over the dimensions of fiscal decisions, which are needed to estimate the impact of such decisions on inflation.

The Bank of Russia leaves unchanged its estimates of risks associated with consumer and oil price volatility, wage movements and possible changes in consumer behaviour.

In its key rate decision-making the Bank of Russia will be guided by assessments of inflation risks, inflation dynamics and economic developments against the forecast.

The Bank of Russia Board of Directors will hold its next rate review meeting on 15 June 2018. The Board decision press release is to be published at 13:30 Moscow time.


Interest rates on the Bank of Russia operations

(% p.a.)

Purpose Type of instrument Instrument Term Rate since 12.02.18 Rate since 26.03.18
Liquidity provision Standing facilities Overnight loans; FX swaps1; Lombard loans; REPO 1 day 8.50 8.25
Loans secured by non-marketable assets or guarantees 1 day 8.50 8.25
from 2 to 549 days2 9.25 9.00
Open market operations (min bid rates) Loans secured by non-marketable assets, auctions2 3 months 7.75 7.50
FX swap auctions1 from 1 to 2 days3 7.50
(key rate)
(key rate)
REPO auctions from 1 to 6 days3, 1 week
Liquidity absorption Open market operations (max bid rates) Deposit auctions from 1 to 6 days3, 1 week
Standing facilities Deposit operations 1 day, call 6.50 6.25
Memo item: Refinancing rate4

1 Interest rate on the ruble leg; interest rates on the FX leg are equal to LIBOR rates on overnight loans in respective foreign currencies.
2 Loans provided at a floating interest rate, linked to the Bank of Russia key rate.
Fine-tuning operations.
4 Starting from 1 January 2016 the refinancing rate was set equal to the Bank of Russia key rate set as of the respective date. Starting from 1 January 2016, the independent value of the refinancing rate will not be set.
Refinancing rate values prior to 01.06.2016
Interest rates on the Bank of Russia suspended operations

The reference to the Press Service is mandatory if you intend to use this material.