Russia’s central bank has kept its monetary policy on hold leaving the benchmark interest rate unchanged at 10.5%.
According to the bank’s officials, this level will ensure the balance in the banking sector, while cheap loans will on the contrary increase price pressures. The Bank of Russia’s interest rate decision does not affect inflation, some experts claim. Both the weakening of the ruble and the rise in prices first of all depend on oil prices that are falling rapidly at the moment. In case the pace of the rate cut is kept, inflation could rise to the level of 8%.
The Bank of Russia cut its benchmark rate by 50bps to 10.5% on June. Now the regulator aims to keep it unchanged as moderately tight monetary conditions allow the bank to maintain a balance with loans available to borrowers and bank deposits still attractive.
Moreover, manufacturing activity continued to recover in even despite weak demand. Consumer prices remained stable and inflation slowed down.
According to the Bank of Russia’s estimate, inflation will fall below 5% in July 2017 and will reach the target of 4% by late 2017. However, the bank does not rule out the possibility that inflation will not fall to 4% within this time frame. Therefore, it will consider the possibility of lowering its key rate.
