Friday, January 29, 2016

The Bank of Russia switched to “hawkish” tone – RIA Novosti

MOSCOW, January 29 – RIA Novosti. The Bank of Russia on Friday once again kept interest rates at 11% per annum, but abruptly changed the tone of his statement, added the press release phrase about a possible tightening monetary policy.

interviewed by RIA Novosti, analysts believe that the decision of the Central Bank rate was expected, but a fundamental change in the rhetoric of control somewhat surprised economists. In their view, the abrupt change “mood” in the release means that its further steps the Bank of Russia has to put at the mercy of external conditions, and in fact the change in oil prices.

On Friday, the first meeting of the Board of Directors Central Bank interest rate policy in the current year. Last year, the regulator gradually reduce the rate, but at a meeting of 11 September for the first time since the beginning of the year has left it unchanged – in August it is “frozen” at the level of 11% per annum. The latest decision of the Central Bank of the market is not surprising, slightly affecting the dynamics of the ruble on Friday.

“CBR left the expected key rate unchanged at 11%, but it is almost the only thing that remains of the previous comments. The tone of the statement has become much more “hawkish” – previously manual regulator stated on the possibility of easing over the next three meetings. This phrase was omitted in the release due to an increase in inflation risks, “- said principal analyst at ING Dmitry Polevoy.

The rhetoric of the Central Bank may change

In the middle of January, the head of the Department of monetary policy of the Central Bank Igor Dmitriev has warned that the Bank of Russia may tighten monetary policy in case of the risk scenario with the price of oil in 2016 at $ 35 barrel. However, in this case, the tightening will not necessarily mean an increase in rates, he explained then. According to Dmitriev, under certain conditions, saving rates unchanged may be stricter.

However, economists do not exclude the “reversal” in the policy of the Central Bank – the resumption of “pigeon” rhetoric in the event of a significant improvement in the situation with the prices of oil and inning ruble positions lost since the beginning of the year.

“While the Central Bank has chosen a very cautious and a tougher stance, but it is still not completely rule out the likelihood that if the situation has improved markedly since oil prices and the ruble , then the rhetoric of the Central Bank may also change “- believes the Field of ING.

However, there are risks and that the Central Bank in the continuation of those negative trends that are observed now can quickly increase the key rate, experts warn .

“While explicitly in the press release did not indicate that, while maintaining the low oil prices easing is not expected, a statement of the gain drop in GDP due to the unfavorable dynamics of oil prices, we believe, means that the current state of the economy closer to the negative scenario of the Central Bank in which the inflation risks are at an elevated level, “- said the macro-analyst at Raiffeisenbank Maria Pomelnikova.

Oil pressure

The Bank of Russia in its the message has not bypassed the situation on the world oil market, explaining that when deciding on the key rate was taken into account the situation in the Russian economy, which increased the risk of continuing decline due to lower oil prices. Also, the regulator should take into account the factors of high debt burden of Russian companies and take into account the interest rate risk for banks and their borrowers.

Most of the 2015 world oil market declined, while from May to the end of the year the price of a barrel of Brent crude lost 47% fell in the area of ​​$ 36 per barrel. In January, oil prices renewed multi-year lows, falling in the area of ​​$ 27 per barrel of Brent, then rebounded to around $ 31. By the end of January, oil prices began to regain lost ground, and the cost exceeded $ 35 per barrel.

According to the baseline scenario of the Central Bank, it is assumed the average annual oil price of $ 50 per barrel, the reduction of the Russian economy in 2016 is expected to be 0 , 5-1%. Under the stress scenario, while the average annual oil price of $ 35 per barrel, the decline of Russia’s GDP could be around 2-3%.

“What happened under the influence of falling oil prices, the weakening of the ruble has proinflyatsionnoe pressure and promotes the growth of inflationary expectations despite the slowdown in the annual inflation rate, “- said the Central Bank in a release. According regulator, oil prices in 2016-2017 are likely to be lower than previously estimated in the baseline scenario.

According to the expectations of the regulator, a floating exchange rate will partially offset the negative impact on the economies of low energy prices . The Bank of Russia has warned that it will take further adaptation of the balance of payments and the economy to lower the level of world prices for Russia’s main exports.

“First of all, our attention is drawn to the fact that the Central Bank connects the current elevated rates of growth of prices and increasing the risk of accelerating inflation is a new wave of lower oil prices. This is the regulator does not allow assessment of the possible extent of rising inflation due to have happened to lower oil prices. This is not surprising, since the sharp decline in oil prices, there is likely only one month “, – notes Pomelnikova from Raiffeisenbank.

Central Bank remained faithful to the main goal

Despite the change of rhetoric, the Bank of Russia does not give up its targets for inflation – 4% at the end of 2017, although Therefore the other set up the interim guidelines: in the December release regulators say the expected decrease in the annual inflation rate at the end of 2016 to about 6%, in January said its level in January 2017 – less than 7%.

“We We believe it is important that the Central Bank underlines the immutability of its forecasts for inflation and matching the current price dynamics still a landmark – 4% in 2017, noting only that increase the risk of deviations from the target at the end of 2017. We note that the Central Bank sees an opportunity to achieve the goals of inflation only in the case of reducing inflation expectations, otherwise, inflation reduction will be achieved through measures of monetary policy, “- said Pomelnikova.

The next meeting of the Board Directors of the Bank of Russia, which will consider the question of the level of the key rate, scheduled for March 18, 2016.


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