World Economy

Russia Holds Key Rate Steady

Russia Holds Key Rate SteadyRussia Holds Key Rate Steady

Russia’s central bank held its key interest rate steady at 10%, opting to keep inflation in check rather than help jolt the economy out of recession.

Inflation risks have subsided and “our medium-term vision has not changed” since the bank last cut the rate in September by half a percentage point, said central bank chief Elvira Nabiullina at a press conference, AFP reported.

But in a separate statement the bank also warned that “the potential of interest rate reduction is limited in the near future. Price growth has slowed down noticeably in all key groups of goods and services,” said the statement. “Annual growth in real wages may facilitate a gradual recovery of demand for goods and services.”

Russia aims for inflation of 4% in 2017 and the central bank said it will monitor government spending for any increase prompted by higher prices for oil, on which the Russian economy is highly dependent.

“We expect inflation to be between 5.4% and 5.8% by the end of the year. This dynamic is even better than what we expected a year ago,” Nabiullina said.

The unchanged rate “confirms the stability of the current situation” said VTB24 analyst Dmitry Lepetikov, adding that a rate cut could come as early as the next quarter as inflation eases further.

William Jackson, an analyst at Capital Economics, agreed, saying that policymakers’ concerns about inflation have “faded a little” which he said supports the idea that the central bank will resume easing in the first quarter of 2017.

“For our part, we think the combination of spare capacity in the economy and weak demand will eventually bring inflation down further and we expect it to near the bank’s target by mid-2017,” he said in a note to clients.


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