The key interest rate has been reduced to 6% per annum, already the Bank of Russia, as confirmed by Bank’s Chairman Elvira Nabiullina, may move to a soft monetary policy, Kommersant reported.
The combination of circumstances that the Bank of Russia faced in February 2020 apparently did not leave room for a different strategy. However, in the statement by the head of the Central Bank, it is important to demonstrate the absence of actual restrictions on such an explanation of the regulator’s actions.
The magnitude of the effect of this and possible subsequent rate cuts is highly dependent on the mood of the population and investors: for the first time, the Bank of Russia and the government will be able to try to combine monetary and budget policies and evaluate the result in the fall of 2020.
The decision of the Board of Directors of the Bank of Russia at a meeting on February 7 determined the inflation rate in January. In this part, mention of a decrease in the consumer price index in January to 2.4% is less important than the core inflation recorded by the Central Bank of 2.7% in the same dimension.
This is clearly below the schedule – the head of the Bank of Russia in his statement acknowledged a decrease in inflation below the forecast path, in a press release from the Central Bank low demand is indicated by the main disinflation factor.
Accordingly, against fears of lowering the key rate by 25 basis points, from 6.25% to 6% per annum, only fears of strong instability in the world markets related to coronavirus infection or the assumption of a future rapid increase in inflation expectations could play, but they did not affect Central Bank forecasts, rate reduced.
In these circumstances, it was precisely the formulations of the Bank of Russia representatives about the reasons that dictate such a decision to the board of directors of the regulator.
The costs of tough rhetoric would be a certain pressure on business activity. Neutral – the growth of uncertainty. Soft – assumptions that the Bank of Russia is ready to support the budgetary policy of stimulating GDP growth, announced the day before by First Deputy Prime Minister Andrei Belousov (recall, the Central Bank and the government previously announced the launch of a mechanism of constant consultations), its own monetary policy (DCT).
The third option was chosen and in an open forum. In response to media questions, Elvira Nabiullina emphasized that the Central Bank did not revise the assessment of the key rate neutrality corridor of 6–7%, the rate remains at the lower end of the range (with the necessary reservations about the conditionality of these calculations), the Bank of Russia allows the possibility of a reduction at the nearest (i.e. including March) meetings of the board of directors of the key rate and below 6%.
In itself, this statement looks like a simple statement of facts, but in it you can see several long-term signals at once.