Russia Leaves Monetary Policy Unchanged

At its September 12th, 2014 meeting, Russian central bank decided to leave its benchmark one-week repo rate steady at 8 percent, as the current monetary policy stance is expected to bring inflation down to 4 percent in the medium run.

Excerpts from Information Notice of Bank of Russia:

In August — early September 2014 the year-on-year consumer prices growth rate increased again due to materialization of inflation risks associated with aggravation of geopolitical tensions, the imposition of external trade restrictions and the impact of these developments on the ruble exchange rate dynamics. As a result, consumer price growth rate is likely to remain exceeding 7% till the end of 2014. In addition to this, the risks related to possible changes in tax and tariff policy persist. According to the Bank of Russia estimates current monetary policy stance will ensure decline in consumer price growth rate to the target of 4% in the medium run. The Bank of Russia will decide whether it is appropriate to change the key rate considering the risks for achieving medium-term inflation target taking into account economic development prospects. If inflation expectations remain at the elevated level and the threat of inflation exceeding the target in the medium-term emerge the Bank of Russia may continue raising the key rate.

Should the external political situation normalize, economic uncertainty decrease and expectations of economic agents improve, investment activity will see gradual recovery. Consumer demand growth will stabilize at a lower level. Net export contribution to GDP growth will stand close to zero. According to the Bank of Russia estimates, GDP growth rate in 2015 will amount to 0.9-1.1%.

Consumer price growth rate with high probability is likely to remain exceeding 7% till the end of 2014. Further inflation dynamics will be determined, inter alia, by the speed of adjustment of the economy to the imposed restrictions. The increase in consumer prices growth caused by the aforementioned factor is unlikely to be protracted. In the absence of negative shocks, decline in inflation and inflation expectations is expected to resume in the first half of 2015 as the impact of the mentioned restrictions on prices is exhausted. Subdued aggregate demand along with total output of goods and services remaining slightly below potential will also facilitate inflation reduction. Current monetary policy stance will ensure deceleration of inflation to the target of 4% in the medium term.

Russia Leaves Monetary Policy Unchanged

Central Bank of the Russian Federation | Joana Taborda |
9/12/2014 10:57:21 AM