Became known why the Bank of Russia has sharply lowered the rate

the Central Bank lowered the key rate by 100 basis points (1 percentage point), guided the development of the situation in the Russian economy and Russian financial markets during the past six weeks. About it today on a press-conferences were declared by the Chairman of the Bank of Russia Elvira Nabiullina.

Earlier on Friday, the Board of Directors of the Bank of Russia lowered the key rate immediately by 1 percentage point — from 5.5% to 4.5% per annum — to a new historic low.

“One percentage point is much more than the steps that we did in the last few years. Although this decision was widely expected and analysts and the financial market, I consider it useful to explain why the current situation requires such a step”, — quotes RIA “news” the head of the regulator.

first, according to her, the situation in the economy develops so that the disinflationary effect will be even stronger than expected in April. Secondly, the effect of short-term reinflation of the factors considered at the meeting of the Central Bank in April, is already settled: monthly inflation in may slowed down significantly compared to April. Thirdly, monetary conditions in may and June began to soften after tightening in March—April.

in addition, said Nabiullina, financial stability risks decreased significantly.

She also noted that at the next meeting (24 July), the regulator may reduce the key rate, and to take a break, and the decision will be made “depending on the information” that the Central Bank will “receive, depending on updated forecasts”.

Commenting on today’s decision by the Bank of Russia, the head of the Duma Committee on Finance Anatoly Aksakov said that the rapid action of the regulator “will push banks to further lower interest rates on commercial loans and will help to minimize the negative economic consequences of a pandemic coronavirus”.

In his view, the cheapening of credit resources simultaneously with the implementation of state programs of support of the population and business in a pandemic is a serious stimulus for the incipient revival in economic activity, notes TASS.

for his part, the chief of Department of the analysis of banks and money market IK “VELES Capital” Yuri Kravchenko drew attention to the fact that in the final press release of the Central Bank “some have adjusted their key phrase”. “If the regulator had allowed “the possibility of further reduction of the key rate at the next meeting,” now, the Central Bank “will assess the feasibility of further reduction at the next meeting””, the review says the expert.

He believes that “a change in key wording of the Central Bank reduces the probability of a rate cut at the next and upcoming meetings, and potential step of a rate cut”. “However, the Central Bank left a clear message on maintaining a soft interest rate policy, focusing on the risk of deviations of inflation down from 4% in 2021. So now the balance of risks is completely biased towards the disinflationary factors, which retains the possibility of further easing before year-end. We expect that if the regulator decides to lower rates at a future meeting, then return to the minimum step of 25 basis points. In General, the end of the year we expect to see the key rate at the level of 4-4,25% per annum,” concludes the analyst.

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