The ruble has reacted calmly to the reduction in the rate of the Central Bank – Whistle

Photo: Sergey Kon’kov / TASS

The Bank of Russia has lowered its key interest rate from 14% to 12.5 % per annum, making sure that inflation slowed and the ruble is not threatened further weakening. The foreign exchange market on the decision of the Central Bank reacted almost

The Board of Directors of the Central Bank at its meeting on Thursday, April 30 adopted a compromise solution, lowering its key rate by 1.5 percentage points. Half of the experts expected rate cut by 1 percentage point, while others hoped for a more aggressive reduction – by 2 percentage points Especially that slow the rate of inflation and strengthen the ruble to disposal. The first reaction of the foreign exchange market on the decision of the Central Bank was neutral. However, in the long term, experts expect the devaluation of the ruble against the major currencies with increasing the money supply in the money market.

“In the face of February-April 2015 the ruble and a significant reduction in consumer demand monthly consumer price inflation declining, there are signs of stabilization of the annual inflation rate, – argues in support of its decision the Central Bank. – By April 27, the annual growth rate of consumer price inflation was 16.5%. The existing high level of annual inflation mainly due to the effect of short-term factors: the weakening of the ruble in late 2014 – January 2015 and trade restrictions. However, in March-April, the monthly growth rate Consumer prices have fallen, it is estimated that an average of 1.0% after 3.1% in January and February. ”

The moderating effect on prices provided decrease in consumer demand in the face of shrinking real incomes, as well as observed in the last three months of the ruble. Against this background, there was a decrease and inflation expectations. Recent weekly data on consumer price inflation have been published by Rosstat on Wednesday, and they recorded a price growth of just 0.1% in the week, which also influenced the decision of the Central Bank.

However, in addition to the effect on prices, the key rate and lays the foundation for future economic growth, because it is actually a benchmark for banks and interest rate they lend to people and companies in the real sector. Meanwhile, under the influence of high rates lending to companies and individuals slowed down to a critical level, the decline in GDP as in recent months has been accelerated. According to the report of the Ministry of Economic Development, published on Wednesday evening on the eve of the meeting of the Central Bank show an accelerated decline of the economy in March – up 3.4% on the previous year. While in February the fall was only 1.2%. Total for the first quarter the economy slipped by 2.2% compared to a year ago. Office records decline in investment in fixed assets by 6% in the first quarter, and this just is not the last achievement of high rates.

However, the forecast of the Central Bank, the peak of the inflation problem is passed, further price growth rate will slow down. Annual inflation next year will be reduced to less than 8% (April 2016 to April 2015) and to the target level of 4% in 2017. As a further weakening of inflationary risks, the Bank of Russia intends to continue to lower the key rate. The next meeting of the Board of Directors of the Bank of Russia, which will consider the question of the level of the key rate, scheduled for June 15, 2015.

The Russian ruble neutral responded to decrease in the rate of the Bank of Russia, as this decision was expected for the market. “A more significant easing of monetary policy could trigger a slight weakening of the Russian currency,” – said Vladimir Evstigneev, deputy head of the analytical department of the Bank “Zenit”. – The ruble also react poorly to update the local maxima of quotations of “black gold”. Trading activity is minimized, and the major players are likely to have formed their positions in anticipation of the increased weekend. “As of 15:00 MSK the ruble to the dollar traded at 51.45 rubles., The European currency – at around 57 63 rubles.

In the long term continuation of the cycle of rate cuts may contribute to the weakening of the ruble, as credit expansion and saturation of the market of ruble liquidity. But we must not forget that the interest rate of the Central Bank is not the only factor influencing the rate of national currency – the dependence of the ruble against foreign factors and the price of oil will not go away.

Michael Khmelev