Russia holds key interest rate at 7¼%; neutral monetary policy eyed

By Wendy Van Sickle

Columbus, Ohio, July 27 – The Bank of Russia’s board of directors decided to keep its key interest rate at 7¼% on Friday.

The bank said in a notice that, although annual inflation remains below the target, it is tending to return to 4%.

Annual inflation stood at stood at 2.3% in June and is expected to stay in the 2.5% to 2.6% range in July in line with the bank’s forecast.

The bank of Russia forecasts that consumer prices will grow by 3.5% to 4% year-on-year at the end of 2018, and annual inflation will temporarily overshoot 4% in 2019, owing to the planned increase of the value added tax.

The annual consumer price growth rate is expected to return to 4% in early 2020.

The risk balance is shifted towards proinflationary risks, with uncertainty persisting over how strongly tax measures may affect inflation expectations and how the external conditions will develop.

In making its key rate decisions the bank said it will continue to assess inflation risks, inflation dynamics and economic developments against the forecast.

The bank said it believes monetary policy is highly likely to shift to a neutral stance in 2019.

Monetary conditions are already close to neutral, and the bank estimates the conditions are already causing almost no constraining impact on credit, demand and inflation dynamics.

The next key rate review meeting will be held on Sept. 14.

© 2015 Prospect News.
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