Statement by Elvira Nabiullina, Bank of Russia Governor, in follow-up to Board of Directors meeting 23 March 2018
The Bank of Russia Board of Directors today reduced the key rate by 25 bp to 7.25% per annum.
The level of the key rate is gradually approaching the range denoted as neutral. This is the range where monetary policy does not encourage either reduction or acceleration in inflation relative to a target level. You will remember that now we evaluate the key rate to be 6-7%. We have yet to grope for a future level of the key rate to a point when we can say that the rate cut cycle is over. In the first place, we will look into how demand, credit, inflation and the economy in general respond to rate reductions we have implemented. We admit there is still potential for further reduction in the key rate. We expect to complete our transition to a neutral policy before the end of this year. This being said, our estimate of the range of the neutral rate may change subject to a number of factors.
Here is another point to make: previously, when we discussed the neutral key rate, the assumption was that money market rates would be very close to the key rate. We are currently seeing the banking sector adjusting to a strongly growing liquidity surplus. Even though money market rates remain within the corridor borders, they are at levels lower than the key rate. This has some impact on monetary conditions. This situation is likely to last for some time. And we take this into account in making key rate decisions. We will also seek to bring money market rates closer to the key rate adopting only those measures that would not constrain interbank credit.
Let me now proceed to present our view of the current situation and forecast. I will highlight the key reasons behind today’s decision.
First, we note a systemic character of inflation movement towards all-time low readings. This is evidenced by price trends across various products and regions.
On annual terms, prices for most consumer goods and services are growing at less than 4%. ‘Most’ means roughly two thirds of consumer goods and services in December and roughly three fourths in February. In a regional breakdown, inflation in February totalled under 4% in all but one constituent regions.
Second, we have reviewed somewhat the nature of factors driving inflation movements. Recent trends in the food market were considered to have been mainly triggered by temporary tailwinds, primarily weather conditions. However, the moderate growth of food prices has held longer than we expected. We view this to be the result of investment into agriculture which boosted its production potential. We certainly take into account that food prices will remain more volatile than other product groups. However, new agricultural technology will undermine the dependence of agricultural produce and, respectively, that of price movements on the weather conditions. This is no less than a structural change with a long-lasting effect.
Similarly, the budget rule helped significantly to reduce the impact of oil market fluctuations on domestic economic conditions. We are already seeing a ruble exchange rate which is less sensitive to oil prices. We note that the scale of this impact on a wide range of consumer prices has declined. Therefore, if previously we used to consider exchange rate fluctuations predominantly as a temporary factor, now its changes will have a fundamental nature.
Third, we have taken into consideration the dynamics of households’ and businesses’ inflation expectations. Households’ estimates for both current and expected inflation are declining. Market players’ inflation expectations have been steadily around 4% for quite long. We now observe a pronounced shift in the inflation expectations of businesses. Our surveys show that about 60% of 1,680 respondents polled by the Bank of Russia have embedded 4% or less inflation in their business plans. One year ago it was only 22% out of 1,300. In this manner, a transition to low inflation is essentially another structural factor for the economy. However, households’ inflation expectations are still heightened and sensitive even to temporary upticks in prices for separate groups of products. This may generate pro-inflationary risks.
We further note that the propensity to consume is rising gradually. Overall demand meanwhile brings about no major risks of inflation deviating upwards from 4%. This being said, we admit a certain strengthening potential in these risks related to the situation in the labour market, which I will highlight later on.
The influence of other factors on inflation, including the exchange rate, the rates of indexation of regulated tariffs and prices, and movements in global commodity prices, was minor. The total impact was close to neutral.
As regards further dynamics of inflation, we expect inflation to hit a new low in the second quarter. This will be driven by the past year high base effect in the food segment. After that annual inflation will progressively return to 4%. This will be facilitated by rising consumer demand amid monetary policy easing. Our forecast suggests that inflation may stand at 3 to 4% as of this year-end, and hold near 4% in 2019.
As regards inflation risks, the Bank of Russia left its estimates overall unchanged. However, the effect of some factors will claim more of our attention.
Such factors include, among others, the growth of the productivity of labour lagging behind wage and income movements. At the beginning of the year incomes showed substantial growth. It is still largely uncertain, whether this delay is a one-off phenomenon or a sustainable trend emerging on the backdrop of expanding skill shortage in the labour market. As fresh data are released, we will track the impact of this factor on consumer demand and estimate the possible proinflationary effect.
Of course, oil and food price dynamics at large continues to remain the source of uncertainty. As I have mentioned, they are losing their grip on inflation. Nevertheless, their considerable fluctuations may have a tangible effect on core inflation.
The balance of inflation risks will also depend on the fiscal and rate decisions to be made this year and later.
Risks associated with global financial markets have also been on the rise. Given the high growth rates and low unemployment, monetary policy in the US and the euro area may normalise faster than market participants currently expect. The revision of market expectations may come along with volatility surges, as was seen this February. Furthermore, policy normalisation will bring term and risk premium revisions, and a likely upward revision of neutral interest rates abroad. This may discourage investment in emerging market assets, including Russia's. Increased protectionism in world trade is also of some concern due to its potential impacts on the growth of the global economy.
In our mid-term forecast, we adjusted oil price assumptions slightly upwards. In December, we expected average annual prices to hold at 55-45-42 dollars per barrel in 2018-2020. Now we expect them at 61-55-50 dollars per barrel. Nevertheless, this oil price revision in the context of the budget rule hardly changed our expectations as regards GDP growth and other economic activity indicators.
Changes in the balance of payments were a little more tangible. The forecast for the current account balance was revised upwards from $43 billion to $59 billion in 2018. Russia is poised to remain a net exporter over the entire forecast horizon. We revised our forecast of capital outflow and international reserves increment accordingly: capital outflow is expected to increase from $16 billion to $19 billion, while reserves will rise by $50 billion instead of $35 billion, which was previously expected. Let me remind you that capital outflow does not mean dubious transactions. Flows in the current and capital accounts mirror each other. When oil revenue grows, it is recorded both as current account inflow and capital outflow, if stored in foreign currency.
As regards economic growth, the baseline scenario suggests that it will hold between 1.5 and 2.0% on the entire forecast horizon. January’s and February’s economic development data confirmed our estimate that the slowdown in GDP growth at the end of last year was of a temporary nature. The economy continued to expand at the beginning of the year.
As I have mentioned, we intend to complete the transition to neutral monetary policy in 2018. How will the situation develop once it is neutral? This means that we will complete the rate cut cycle, and after that the key rate may be revised both up and down depending on inflation dynamics, economic activity and their forecast readings. Should inflation stabilise near 4% and the economy grow at a rate close to its potential, the key rate may be kept unchanged for a long time.
To conclude, I would stress that the transition to sustainably low inflation is a structural shift. Sustainably low inflation reduces uncertainty for businesses and is important for households’ welfare. Furthermore, low inflation sets new rules of business conduct, encouraging higher effectiveness and a search for new competitive advantages. Ultimately, all of these should boost high-quality and sustainable economic growth in our country.
Q&A for the Media
QUESTION from Bloomberg:
Would you please enlarge on the neutral interest rate you have spoken on. According to your statement, once the key rate has reached a neutral level, the loosening cycle will be over, so the key rate could rise or go down. How do you estimate this level given the current neutral rate range between 6% and 7%? And, respectively, what is your measure of this threshold?
And question two. Given the revised estimate of inflation of 3–4% this year, can you downgrade the measure of a neutral rate from 6–7% to tentatively 5–6%? When will that occur? Thank you.
ELVIRA NABIULLINA:
Thank you very much. There is good reason for us to set the 6–7% range – this is a range rather than the level of a neutral rate. We have yet to feel about a level where the key rate and, consequently, money market rates bring about neither growth nor decline in inflation. We will learn this value by experience; 6–7% is just an estimated value, and the range can change.
As you will know, many countries revise the level of an appropriate neutral rate, subject to which conditions are at play. In the United States, for instance, they recently decreased and then increased the estimate of a neutral level.
What is the overall calculation methodology for a neutral rate? It takes into account foreign interest rates, real interest rates, plus our target inflation and the country risk premium. The latter will vary, and so will the level of foreign interest rates. This necessitates reviews in our estimated neutral corridor. As to when this happens, we cannot indicate a particular time – yet, we do admit this may occur.
With inflation currently below 4%, we have indeed the opportunity to reduce interest rates somewhat quicker than we planned before so we could reach a neutral rate sooner. At the same time, we understand that starting from the second half-year, inflation is set to gradually approach 4%. That is why our intention is to continue with gradual rate reduction. We are poised to complete the transition to a neutral rate at some point in time this year, barring any unforeseen circumstances. I know there are questions out there about the exact timing. Yet, there is an array of factors to consider here. Our estimates suggest that the transition to a neutral interest rate should be completed before the end of this year.
QUESTION from Vedomosti:
Mrs Nabiullina, the President, in his instructions in follow-up of the presidential address, included you into the number of those assigned to develop a programme aimed at boosting the share of investment in GDP to 25% by 2024. He further highlighted that he expected the Bank of Russia and the Government to make every effort towards securing growth in investment and economic growth. Can you please specify what is expected of the Central Bank, which proposals and which action?
ELVIRA NABIULLINA:
I am ready to tell you which proposals we are working on, and how we can contribute to investment growth. Sustainable economic growth, as well as better competition, is indeed grounded in investment growth.
One. We think that we are working towards an improved investment climate through our monetary policy and the efforts to reduce inflation. A longer planning horizon is emerging, for the benefit of businesses. As I have said, business is changing their behaviour patterns. It is increasingly difficult for business to pass on higher costs into prices. We need to look for new ways to secure our competitive niche. This is mainly driven by growth in productivity and investment growth – which would spur more investment. This first focus is our monetary policy.
As regards our joint agenda with the Government, the Bank of Russia is a mega-regulator as it is responsible for the development of the financial market and seeks to bring about long-term money resources into the country. Indeed this is our priority task. Low inflation is a condition, not the only condition, to enable the emergence of long-term money resources. We need institutionalised investors who are strongly interested in this long-term investment.
This is why the build-up of pension savings will boost domestic investment capacities. You know about this subject: it is under discussion. And this focus area stretches beyond the need to boost pension savings: we need to strengthen our non-governmental pension funds. We are conducting the relevant stress tests, as you may know. The move will boost trust in private pension funds and long-term savings finds of various kinds including voluntary savings funds, ultimately giving rise to investment resources.
Life insurance: developing the bond market including infrastructure securities. All these efforts, we believe, will lay the groundwork for higher investment.
We will certainly be updating our banking regulation, as I have said earlier. We are in transition to incentive-based regulation, which is the type of regulation to incentivise banks and foster their interest in investing in the real sector of the economy and funding investment projects. As we roll out this regulation, we will be covering all risks. However, in this setting there is a real need for differentiated approaches. We are currently discussing such approaches with the banking community. And we are drawing up such proposals – a set of various proposals.
Let me reiterate: I believe it is critical that we work to improve not only debt finance and credit investment to support economic development, but also capital raising. The national economy lacks capital. With scarce capital, there is a need for conditions that would drive projects involving capital raising, projects involving equity capital. This suggests transparent corporate governance. This is a cross-cutting theme, and we are prepared to discuss with the Government our role in this plan.
QUESTION from Reuters:
Could you comment on your measure of the impact on inflation from central bank injections into banks under resolution? According to Reuters, banks received a further one trillion rubles in March. What would be your estimate? Is it correct that they are investing into coupon OBRs and other instruments that come without proinflationary impact?
ELVIRA NABIULLINA:
These injections have no inflation implications. The current rate of inflation is below 4%. However, funds for resolution are indeed increasing a structural liquidity surplus. We can see this. Yet, we know how to handle this structural liquidity surplus, and we recognise this factor in our key rate decisions.
QUESTION from Russia-24 TV channel:
I would like to hear your views on the subject of mortgage lending. Would the 6–7% range of interest rates be possible for all consumer categories beyond a selected few?
ELVIRA NABIULLINA:
Mortgage loans are rising at a good pace. We are interested in high-quality mortgage services to the effect that our regulation is being adjusted and will be further fine-tuned to support growing mortgage loans of high quality so people can take on loans with the confidence that they are capable of servicing them.
As regards rate reduction, we are indeed seeing rate reduction; however, the process is gradual. This rate is nevertheless likely to reside above our key rate. The key rate range of 6-7%, as I have said, is certain to send the rate higher. Mortgage lending rates can indeed lower in cases of special subsidy schemes – they are in place across regions. Hence the lower interest rates that several consumer categories enjoy.
Mortgage loans are set to become increasingly accessible. This is where the positive impact from lower inflation is evident; as inflation declines, demand for these long-term loans grows. This is why mortgage lending is up at a time inflation is overall brought under control.
QUESTION from Interfax:
Your press release says that both mortgage and consumer lending come without the risks of inflation overshooting 4%. Which expansion in these loans do you think will come with inflation risks, threatening financial stability?
ELVIRA NABIULLINA:
You will probably remember that a while ago, that is, back in late 2013 and 2014, we had to take action to cool down the then booming consumer lending. Behind this decision was the understanding that consumer lending should expand consistent with the growth pace of nominal household income. This is no linear connection: we saw both our incomes and consumer lending drop. Both are currently recovering. For this period then, we cannot suggest there was a linear connection with nominal household income.
We are keeping an eye on the multitude of factors related to financial risks – that is, the level of debt load. The current level of households’ debt load has yet to recover to its pre-crisis highs. Although rising at high paces, overall household debt remains smaller than before.
We still believe that these types of lending, both mortgage loans and consumer loans, should expand at high paces at a time of economic recovery. We are watching how these risks are evolving, and we are exploring the potential increase in risk weights in unsecured consumer lending, as one of the measures to address this.
QUESTION from Kommersant:
For one year and a half, we have seen the phrase ‘at the next Bank of Russia Board of Directors meetings’ in both BoR press releases and your statements. It is gone now. What is going to happen at the next Board of Directors meetings?
Let me clarify my question. Indeed, the conditions are different now and there are no factors to force you into a symbolic decision to stop short of reducing the key rate. Inflation expectations are unlikely to drop this quickly. This suggests the current level of inflation is likely to persist, on the back of temporary factors. What will be your reasoning for a decision to be made at the next BoR meeting?
ELVIRA NABIULLINA:
True, the phrase ‘at the next Board of Directors meetings‘ was present in our message every now and then. Some time ago, we edited out this phrase. The market was clear that we were in a rate reduction cycle, I think; we further indicated that, subject to circumstances, we were prepared to go by a 0.25 or 0.5 step (incidentally, we have debated the two options this time), or we could pause. The [key rate] reduction cycle has yet to be completed. It will be completed once we have hit the 6-7% range.
Plus, let me give this message: once we have hit the 7% range, we may carry on, as long as this is a range for us [rather than a single indicator], so we will explore the response of inflation, unemployment, economic processes as well as proinflationary and disinflationary risks so that we understand the impact of our previous decisions and whether they make any proinflationary effect. We will not be guided by an automatic formula: we intend to look into how much dependent we are on economic developments.
Having said this, we believe there is still potential to further reduce inflation expectations. Incidentally, when we were making the decision this February, we had January's data that showed [inflation expectations were] 8.9%; thereafter they dropped to 8.4% in February, and they are currently 8.5%. Yes, they are up by a mere 0.1. Indeed, they tend to change rather quickly. Still, we believe there is some potential for household inflation expectations to drop further.
QUESTION from RIA Novosti:
According to the Economic Development Ministry, economic growth slowed down early this year. February's estimated growth is 1.5%. What do you think is behind this slowdown? Do you expect this slowdown to persist through the end of the first quarter and in the course of the second quarter as well?
You also said that inflation is forecast to stay at an all-time low in the second quarter. Can you be more specific as to what this reading is?
ELVIRA NABIULLINA:
Our estimates suggest that economic growth continues. Economic growth cannot invariably progress at even or ever-accelerating rates. It is made up of many components; therefore, GDP growth rates may be volatile. Plus, a monthly GDP indicator is not the most reliable of all; estimates are more reliable when supported by quarterly data.
There are signs of continued growth, which is fairly broad-based, that is, growth across many sectors. We are indeed closing in on the estimated potential growth rates of 1.5-2%. We look to the delivery of structural reforms that are set to raise this bar so we can grow quicker. However, our current forecasts are based on a conservative approach and assume the potential growth of 1.5-2%.
As regards the second quarter, we believe inflation may hold close to 2%, plus or minus. Let me reiterate, this is because of the past year's base effect. Last year, the second quarter saw rather quick growth in food prices, there was a shift in the seasonality of food prices, so this is likely to translate into annual Q2 figures this year.
QUESTION from RBC:
In his presidential address, Vladimir Putin has unveiled new measures, in particular, the efforts to reduce poverty by half as much alongside increased spending on healthcare, education and infrastructure. Against this backdrop, we are seeing the launch of birth grant payouts, the May decrees are being executed, and public sector employees’ salaries are rising sharply. Could all these factors combine to cause a short-lived or long-term acceleration in inflation, be it a quicker transition or a quicker return to 4%?
ELVIRA NABIULLINA:
Certainly, the objectives we set call for extra budget expenditure on education, healthcare and the medical industry. My estimates suggest that if structural changes are ongoing concurrently, they will send economic growth upwards and above the estimated potential reading, which will ultimately create an additional revenue base. Besides, the efforts to boost the efficiency of budget expenditure from the priority and allocation standpoint are set to result in these additional expenses (which the economy needs) coming without inflation risks and overall macroeconomic stability risks. These are our assumptions.
Yet, specific decisions regarding these expenditures and their timeframe will all be taken into account in our policy decisions including on the key rate. We have all the monetary policy tools to secure mid-term inflation close to 4%.
QUESTION from Gazeta.ru:
I would like to ask you to specify the point on your involvement in investment policy in accordance with the presidential instruction. Does your previous comment mean that the Central Bank rules out the possibility of its participation in project finance programmes, refinancing facilities, for example, in 2016 when the Central Bank provided the funding of 90 billion [rubles], if I am not mistaken. This is my first question.
And question two, please. Will the Bank of Russia find inflation in the range of 2–2.5% suitable, provided that it stays at this level? Can it be a growth constraint for the economy?
ELVIRA NABIULLINA:
Regarding our participation in investment activity, and regarding project financing where we are involved as a regulator, we have decided that there would be an individual approach to project financing under VEB. This means a different approach to provisioning, as long as we understand that we are not dealing with a SPV, not with a dummy company, but with project financing per se. We are willing to extend this approach to other non-VEB projects.
Now, as regards specialised refinancing facilities whereby the Central Bank provided liquidity for essentially varied programmes, we made decisions in various fields at the time of crisis – at the time we had to upgrade the rates considerably – to support priority sectors against the backdrop of a market failure, as it were. In September 2017, the Board of Directors decided on the exit strategy for these facilities. This exit will be gradual, that is, we first decided to stop short of increasing limits – and we are no longer increasing them. Thereafter, the limits will gradually decrease as this funding is repaid. Taken collectively, the funding under these different tools will be repaid in up to three years; it is only in project financing where funds will be repaid longer.
This is where our policy remains unchanged. We believe that as inflation decreases, we decrease interest rates, so they decrease in the economy, making credit more easily accessible to a broad range of market players. Certainly, priority fields will be supported through governmental programmes.
Now on your second question, that is, what happens if inflation gets stuck at 2-2.5%. We currently see no substantial risk of inflation staying at 2-2.5%. We forecast that beginning from the second half of the year inflation will gradually return to 4%. No, we do not believe our key rate to curb growth. The recovering economic growth we are seeing is very close to potential. It is constrained, as we see this, by structural factors.
As regards your question on inflation getting stuck at 2–2.5%, at which point the Central Bank will find it suitable, I think that inflation below 4% is a good factor. It is a good factor inasmuch as this helps lower inflation expectations, which are strongly dependent on inflation, especially at an early stage in inflation targeting.
Another consideration, [this rate of inflation] enables us to lower our key rate and drive its movement towards a neutral rate quicker than we thought. In this way, we will be able to deliver on this [policy of inflation targeting]. However, should it get suck at 2-2.5%, action will be taken to bring it closer to 4%. Even if this should involve a transition from a neutral to a soft interest rate – we understand we would need to implement this transition. Our commitment is mid-term inflation at 4% – it is clear that it will vary slightly. We must use all the monetary policy tools to deliver on this.
QUESTION from TASS Agency:
Please comment on Mr Aksakov's proposal today to combine all banking associations into one. Is the Bank of Russia supportive of this development scenario for the banking market?
ELVIRA NABIULLINA:
This is the banking community's decision. We are going to accept this decision. We are prepared to work with one or several associations. This is only for the banking community to decide.
QUESTION from Bloomberg:
Will you please specify the following idea. With inflation estimated to reach 3–4%, could the Central Bank come back to the forex market to supplement its foreign exchange reserves, considering that inflation sustainably stays at this level that the Central Bank notes no financial stability risks, if I am right? This is my first question.
And, the second one. You touched on the protectionism issue. Could you enlarge on your comment here in light of the fact that Trump has signed counter-China tariffs after all. China has already responded that they would retaliate. There is investors’ reaction to this. Do you see any signs of an emerging trade war, which many are now talking about? Which implications would this have for the Russian economy?
ELVIRA NABIULLINA:
Our foreign exchange reserves rise on the back of the operating fiscal rule; our estimates suggest that we are poised to reach a total of $500 billion, a level we understood to be our benchmark, rather than a target. We therefore think there is no need for extra purchases of foreign exchange reserves.
On the subject of protectionism, we indeed see the emergence of growing protectionism risks and, more so, mounting uncertainty. This will either morph into a protectionism spiral or stop at some point. Protectionism, if it grows, does brings risks to global trade and global economic growth.
We are an open country. The proportion of foreign trade turnover in our GDP is large, so we will certainly be affected.
The actions taken so far and their direct impact on the Russian economy are very limited and will have no significant implications for economic fundamentals. However, any expansion of these risks (through the global economic growth channel, as I have mentioned) is likely to affect Russia. This is why this is certainly an unwelcome development, we believe.
QUESTION from Kommersant:
Does the Central Bank share the view that the January unemployment level is below equilibrium? What is the likely course of events here? Do you intend to somehow interfere with this?
ELVIRA NABIULLINA:
It is very difficult to estimate a level of equilibrium unemployment, for all equilibrium rates (rates or levels, these two are fairly conditional) are understood to be very close to equilibrium because a seasonally adjusted 4.8% is a fairly low jobless rate. This is the point where some individual markets and some sectors expose signs of skills shortages. This may also be attributable to our demographic conditions, which may impact on the estimated level of equilibrium unemployment (the latter could be slightly lower because of demographic conditions).
Now, as regards the desire to influence this, the only feasible tool to influence this is related to structural factors, that is, the action to drive higher productivity among other things, as I have said. We certainly take this into account. We are tracking labour market developments, productivity and what it means to economic growth, as well as to proinflationary risks.
QUESTION from Russia-24 TV company:
Following up on the question of long-term money resources, what are the Central Bank's current tools?
ELVIRA NABIULLINA:
Let me reiterate: Of all the tools to foster long-term money, the policy of inflation reduction is the key one. This tool widens, or extends the ‘length’ of money resources, if you will; it lays the groundwork for such resources. We do not have a lot of standalone tools, although there are some. As I have said, among them is the action to strengthen the stability of financial institutes including pension funds, insurance companies, aimed at improving consumer trust in these institutes, guaranteeing public confidence in investment and savings in the long term. Naturally, this policy creates the long-term resource institutes.
Some problems could be addressed through legislative changes or regulation jointly with the Government. This is true of long-term pension savings, among other things. We had pension savings frozen a while ago; however, I believe pension savings are indispensable when it comes to the stability of a pension system, a better living standard of pensioners and beyond – as an institute to create long-term money resources in the economy.
Beyond pension savings, I should also mention insurance funds and overall collective investment funds. They are in need of further development; their current proportion is little. We are currently working to update the regulation to lift the various barriers there. Taken individually, each of these barriers may look technical. Yet, altogether they stand in the way of various types of collective investment with the potential long-term money the economy needs.
QUESTION from Reuters:
I have a long question on the interest rate, so let me break it into two. Question one. Mrs Nabiullina, please share your assessment of inflation risks brought about by the more-than-expected growth in real wages in February. To defy our consensus forecast of 6%, this growth totalled 10%.
And my second question is still about the timing. We are all trying to figure out when the next reduction is due. Would that be a fair statement to say that the Bank of Russia will see what happens to this year's crops before a further decision is made?
ELVIRA NABIULLINA:
True, real wages were up substantially early this year, sending real incomes into positive territory. We must wait and see if this trend proves sustainable. The thing is, wages are up in both the public and private sectors, and their structure varies across sectors, industries and businesses. We are not therefore totally clear as to what happens to wage growth. We will be tracking this. This is an issue to be looked into, rather than a source of grave risk.
Now, as regards the next steps to be made on the key rate. Further to what I have mentioned, our viewpoint is, there is still some reduction potential. We are being checked by the totality of risks we have analysed, not just one risk. On the subject of crops, they are no longer a first priority risk. Their impact used to be very strong, so indeed, at the beginning of each year we would think what crops we were likely to have by the end of the year. The past two years suggest however, that this so-called volatility of crops is declining, and so is its impact on prices, it is declining drastically. Crops are therefore no longer a constraining factor.
Some further considerations on the key rate. We will stick to a gradual approach in whatever decisions we take. It is very important to us that market participants and businesses are now building their models and business plans based on the paths of interest rates and inflation. Their assumptions are based on the gradual approach of our policy and its predictability. This is why going forward we intend to adhere to these two principles – gradual approach and predictability.
This does not however rule out a pause at a certain point in time or a 0.25 or 0.5 step. In this context, these possible moves are all consistent with the gradual approach we will go with.
Thank you.