Russia’s Central Bank kept its key rate on hold at 4.25% on Friday. The decision came in line with expectations, the primary reason being the acceleration of CPI to 4.6% year-on-year currently vs. the initial CBR forecast of 3.9-4.2% YoY for this year-end. Central Bank Governor Elvira Nabiullina explained the decision at an online press conference:
“When taking a decision on the key rate in the future, we have to additionally assess how the situation will develop and also whether there is still room left for lowering the rate. It is difficult to give an assertive answer to this question now. If the impact of one-off factors is quickly exhausted and there is a reversal in the dynamic of inflation expectations, then I do not rule out that there might be grounds for additional downward movement in the rate. But such grounds may not appear. For the whole of 2021 we think the orientation of monetary policy will be soft. The timing and pace of normalisation will depend on the development of the situation, there are a lot of uncertainties. As far as publishing the rate trajectory is concerned, we will indeed publish this next year, most likely in the first half of the year”.
Nabiullina added some comments on inflation: “Certainly our view on the balance of proinflationary and disinflationary risks has changed slightly. We don’t see the predominance of disinflationary risks as we saw it previously. Current annual inflation indicators are markedly higher than the trajectory of our October forecast. At the end of 2020, inflation is seen in the range of 4.6-4.9%. Our preliminary estimate is that annual inflation will be around 5% in the first quarter of next year. Then, if the impact of one-off factors subsides relatively quickly, it will drop and return to 4% in the middle of the year.”