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The Bank of Russia today has decided to keep its key rate on hold at 11% per annum.
Despite the improvements in the external conditions and in the economy in February – early March, there is still a lot of uncertainly, according to the board of directors of the Russian Central Bank.
Indeed, oil prices picked up, inflation declined, recession slowed down, and the ruble appreciated. But Elvira Nabiullina believes it would be sound not to act rashly to prevent moving in the opposite direction afterwards.
“Stability and caution in the monetary policy are very important. We must ensure a steady path of reducing inflation to our target of 4% by end-2017. We are perfectly sure that only low inflation is a guarantee of stability and low interest rates in the economy. In order to keep interest rates steady and low, we should first ensure sustainably low growth rates in consumer prices and a decrease in high inflation expectations. Then, proceeding from this, we will have stable and low interest rates. This requires a consistent and gradual interest-rate policy of the central bank. That is why the Bank of Russia may pursue a moderately tight monetary policy for a longer period of time, then assumed earlier, to achieve the inflation target,” she said at a press conference after the BoD decision.
“We have reviewed our baseline scenario and now proceed from the fact that the average price of Russian Urals crude will be equal to $30 per barrel in 2016. It will rise then gradually to $40 per barrel in 2018,” she continued.
“The recent data of 14 March suggest that annual inflation is 7.9%. In the February to March period, it was decreasing somewhat quicker than we expected in January. We expected it to be at 8%-9% for the end of Q1. This takes me back to the 9% reading for March 2016 we forecast a year ago. Average daily price increment in March was at this year’s low. This performance is explained by several reasons,” reads her statement published on the CBR website.
“At the beginning of the year, the dynamics of the economic activity were somewhat better than we expected considering the downturn in external conditions. The annual slump rates in consumption and investment are slowing down, with unemployment still remaining low. In February, the annual growth of industrial production became positive although it is too early to view this tendency as steady,” Nabiullina said.
Article 75 of the Constitution of the Russian Federation establishes a special legal status of the Bank of Russia, gives it the exclusive right to issue currency (Part 1) and protect the ruble and ensure its stability, which is the main function of the Bank of Russia (Part 2). The status, purposes, functions and powers of the Bank of Russia are also spelled out in Federal Law No. 86-FZ, dated July 10, 2002, ‘On the Central Bank of the Russian Federation (Bank of Russia)’, and other federal laws.
According to Article 3 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’, the goals of the Bank of Russia are to protect the ruble and ensure its stability, promote the development and strengthen the Russian banking system, ensure the stability and development of the national payment system, develop the financial market of the Russian Federation and ensure its stability.
Sources: http://www.cbr.ru
Author: Mikhail Vesely
