Russian Inflation Slows Unexpectedly
Rate Cuts Now Possible
The Bank of Russia recently said that rate cuts were off the table for the time being as they focused on bringing down inflation in the Russian economy. It now seems they may be able to relax this vow as price increases in the Russian economy continue to slow faster than expected, nearing the bank’s 4% annual target. Russia’s seasonally adjusted monthly inflation fell to 0.1 percent in February from 0.3 percent in January.
“These figures are clearly low, and for me that’s a reason to suggest to the board of directors that it consider in March the possibility of a rate reduction among other options,” Dmitriev said in an interview with Bloomberg in Moscow.
“A rate increase is now out of the question, while a cut of 25 basis points to 50 basis points is possible, as well as holding it unchanged,” Dmitriev said. “On the one hand, there is a strong decline in inflation. But risks persist, including from the oil market, the harvest’s performance, the global food market. Inflation expectations remain high.”
An interest rate cut would add fuel to a slowly recovering economy in the Russian Federation and would take some of the heat off the strong ruble which has appreciated significantly over the last few months, now well into the 57 to the USD handle, down from its all-time high of near 80 during the height of the recent crisis over oil prices and sanctions.
“High inflation expectations are a signal to consider not changing the rate as we don’t know how strong of any impact they will have on inflation,” Dmitriev said. “On the other hand, such a significant trend in the inflation slowdown is already grounds for adjusting policy.”