The Bank of Russia decided to keep its key rate at 11.00% p.a.
On 29 January 2016, the Bank of Russia Board of Directors decided to keep its key rate at 11.00% p.a. On the backdrop of yet another oil price slump, monthly consumer price growth rates stabilised at a high level, with a higher risk of accelerated inflation. The deterioration in the global commodity markets will require a further adjustment of the Russian economy. On the strength of today’s decision, the Bank of Russia estimates annual inflation to decrease to a point below 7% as early as January 2017 so it reaches the 4% target by late 2017. Should inflation risks amplify, the Bank of Russia cannot rule out a tightening of its monetary policy.
The time period since the Bank of Russia Board meeting in December saw risks to price stability escalating. The stubborn glut of oil, the slowing Chinese economy, combined with the US Federal Reserve rate hike, have triggered a further drop in the price of crude. This, in its turn, caused the national currencies to weaken and asset prices to drop in emerging markets, affecting Russia. With more volatility in oil prices, the magnitude of variation in Russian financial asset prices and the ruble exchange rate fluctuation has increased.
The recent weakening of the ruble is putting pro-inflationary pressure and causes inflation expectations to grow, despite a slowdown in annual inflation. According to Bank of Russia estimates, the annual growth rate of consumer prices is set to drop from 12.9% for December 2015 to approximately 10% for January 2016. This slowdown in annual inflation is in line with the previous forecasts. The Bank of Russia expects consumer prices in 1Q 2016 to grow
The key rate decision has been made in recognition of the current economic situation, with elevated risks of continued recession provoked by falling oil prices. The high debt load of Russian companies and interest rate risks for banks and their borrowers have also been factored in.
However, should oil prices remain persistently low, this will further escalate inflation and financial stability risks and will require a more extensive adjustment of the economy to the new conditions. A continued persistence of high inflation expectations may also hamper the slowdown of consumer price growth. A well-balanced fiscal policy will be required to mitigate these risks in the medium term.
Should inflation risks amplify, the Bank of Russia cannot rule out a tightening of its monetary policy.
The Bank of Russia Board of Directors will hold its next rate review meeting on 18 March 2016. The press release on the Bank of Russia Board decision is to be published at 13:30 Moscow time.
Interest rates on the Bank of Russia major operations1
|Purpose||Type of instrument||Instrument||Term||Rate since 16.06.15||Rate since 03.08.15|
|Liquidity provision||Standing facilities (fixed interest rates)||
Loans secured by gold;
Loans secured by non-marketable assets and guarantees;
FX swaps (ruble leg)
|Open market operations (minimum interest rates)||
Loans secured by non-marketable assets,
from 1 to 6 days3,
|Liquidity absorption||Open market operations (maximum interest rates)||Deposit auctions||
from 1 to 6 days3,|
|Standing facilities (fixed interest rates)||Deposit operations||
|Memo item: Refinancing rate4|
I Information on interest rates on the Bank of Russia operations is given in the Table ‘Interest rates on the Bank of Russia operations’.
2 Floating interest rate linked to the level of the Bank of Russia key rate.
3 Fine-tuning operations.
4 The Bank of Russia Board of Directors decided to equate from 1 January 2016 the refinancing rate with 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.
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