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FX.co ★ Russian inflation may turn to deflation

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Forex Humor:::2015-03-24T18:35:00

Russian inflation may turn to deflation

While the Bank of Russia cuts its key interest rate twice within a month trying to tame inflation, the Western analysts predict different problems for the Russian Central Bank. The analysts at Bank of America are sure that record inflation in Russia may turn to deflation in the nearest 2-3 years. Economists doubt that the country’s fragile financial system may recover in the near future. The annual inflation is heading to 17%. According to the expectations of the Russian regulator, a fall in economic activity will underpin inflation slowdown to around 9% during a year. As soon as the inflation risks start to decline, the central bank will be ready to continue lowering the key rate. Analysts at Bank of America Merrill Lynch estimate the situation differently. They believe that deflation will be logged instead of inflation in 2-3 years. These forecasts are that in 2015 the Central Bank of the Russian Federation will reduce the rate to 9%. The next step will be a drop to 7% in 2015, while by the end of the next year the rate may fall to negative readings. Such suppositions are based on the fact that high credit rates will decrease money supply considerably. As a result, after inflation effect of weak ruble and rate indexation starts fading away, inflation rates will begin to slow down. Allowing for GDP growth of 0.9% and oil price of not more than $57 a barrel, the bank’s economists anticipate inflation to be at the level of 5.1% by the end of 2016.

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