Russia’s central bank left its key interest rate unchanged for a second straight month on Friday, defying expectations for a reduction. The bank cited persistent substantial inflation risks for the maintaining status quo and signaled that it may lower the key rate in coming months as inflation slows.
The Board of Directors decided to keep the key rate unchanged at 11 percent, “in recognition of persistent substantial inflation risks”, the Bank of Russia said in a statement. Economists were looking for a half-point reduction to 10.5 percent.
The bank lowered the benchmark interest rate five times this year, the latest reduction being the 50-point cut at the end of July.
“The balance between inflation risks and the risks of economy cooling has mainly remained unchanged,” the bank said. The ‘moderately’ tight monetary conditions and the weak domestic demand are expected to keep putting downward pressure on inflation.
“As inflation slows down in line with the forecast, the Bank of Russia will continue with a downward revision of its key rate, at one of its forthcoming Board of Directors meetings,” the Bank of Russia said.
The bank expects annual inflation to be below 7 percent in October 2016 and about 4 percent in 2017.
“The slack domestic demand and the moderately tight monetary conditions will drag down annual inflation in 2016-2017,” the bank said. “A slowdown in the annual consumer price growth will create prerequisites for decrease in inflation expectations.”
Annual inflation was forecast to decline considerably early next year, partly due to its high value in early 2015.
Inflation expectations, though having decreased as compared with September, remain elevated, the bank said. The bank estimates inflation to be 15.6 percent in October.
The material has been provided by InstaForex Company – www.instaforex.com