the Economic crisis caused by the pandemic coronavirus infection COVID-19, and the collapse of oil prices and devaluation of the ruble in February—March, was caused by the supply shock and the demand shock, but the latter was stronger which allowed the Bank of Russia to begin lowering the key rate. Speaking at the Financial forum of RSPP said the first Deputy Chairman of Russian Central Bank Sergey Shvetsov.
In his words, “the crisis extraordinary — we see a demand shock and supply shock”.
“on the supply side of the production is stopped”, however, said the first Deputy Chairman of the Central Bank, “the demand shock was much higher and it allowed the Bank of Russia” not to raise interest rates, and, “on the contrary, to begin its decline”, according to PRIME.
this Shvetsov said that the regulator sees headroom for further rate cut.
Recall that on 8 may, the Chairman of the Bank of Russia Elvira Nabiullina said that the Central Bank allows the option of reducing the key rate from 100 basis points (or 1 percentage point) at the next meeting, which is scheduled for June 19.
“as for our step on the key rate (now is 5.5% per annum — ed.). I want to tell you that at the last Board meeting we discussed the possible reduction of 100 basis points. I admit that if the situation develops as it is now, the option of reduction of 100 basis points will also be regarded, certainly, among the other alternatives (in June — ed.)”, — quotes the PRIME head of the Central Bank.
however, she pointed out that the trajectory of the key interest rate will be determined so that the inflation was near 4%.
Recall that on April 24 the Board of Directors of the Bank of Russia lowered the key rate immediately by 50 basis points to 5.5% per annum. Thus, the rate is lowered for the second time in the current year and up to the level of a historical minimum at the end of 2013 — the beginning of 2014. The regulator thereby identified the exit to accommodative monetary policy that should support the Russian economy in the conditions of a pandemic coronavirus infection.
the Key rate of the Bank of Russia — the main tool of monetary policy of the regulator. The rate at which the Central Bank provides money to commercial banks. She serves as a signal of financial organizations, which focus on key rate, by providing loans and attracting deposits.
As stated the Central Bank in its press release that “the situation has changed dramatically since the meeting of the Board of Directors in March.” “To fight the pandemic coronavirus significant restrictive measures introduced in the world and in Russia, which adversely affects economic activity. This creates a significant and long-lasting disinflationary impact on prices from aggregate demand, compensating for the effects of temporary proinflationary factors, including falling oil prices,” — said the controller.
Later, on 28 April, Nabiullina said that the Central Bank of the Russian Federation, realizing the scale of the economic shock due to coronavirus infection COVID-19, the collapse of oil prices and the devaluation of the ruble could reduce the rate in larger increments than before.
let’s Add that the Russian economy in February—March 2020 was under the powerful impact of two negative factors — the rapid spread of the pandemic coronavirus infection COVID-19 and its deleterious effect on the global economy and collapse in oil prices. Against this background, the rouble significantly depreciated against the dollar and the Euro. Reacting to the situation, the government and the Bank of Russia adopted several packages of measures to support the economy and citizens.
on 21 April the Russian government announced that the value adopted by the Cabinet of Ministers of measures to support the economy already amounted to 2.1 trillion rubles. Earlier, the head of the Ministry of Finance of the Russian Federation Anton Siluanov said that the budget measures to combat itarenaviruses and its consequences in Russia is about 2.8% of GDP. In General, the total volume of fiscal support to individuals and business of all sectors in the context of pandemic coronavirus, the Ministry of Finance was estimated at 6.5% of GDP.
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