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Monday, January 22, 2018

“Bank of America changes policy Bank of Russia”

According to experts of of , in March, the Russian Central Bank may move to large-scale of reducing interest rates. Essentially, this means that the Bank of will abandon its policy of containment of inflation at any cost and allow you to develop the real sector of the economy.

photo: Gennady Cherkasov

Russia faces long-term risk of deflation due to a sharp limitation of the budget, reducing debt levels, demographic factors, surplus of current account and high real interest rates. This writes the analyst of Bank of America (BofA) David honer in the client survey, reports Bloomberg.

However, noted American experts who was quoted by TASS, inflation in Russia slowed significantly in the beginning of 2016. So, in February, according to Rosstat, the growth of consumer prices amounted to 0.6%, from beginning of year to 1.6%. In annual terms inflation in February amounted to 8.1 per cent. For comparison: in February 2015 the growth of consumer prices was 2.2%, almost four times the current.

According to the expert BofA, the Bank of Russia at the nearest session on March 18 to begin a large series of reduction of the key rate, which can be a maximum in the global market in the next few years. In the baseline scenario BofA first reduction in the key rate this year may happen a bit later – in the second quarter. However, the chances of a rate cut in March is due to the growth of the ruble, according to experts of the Bank.

If foreign experts are right, this means a fundamental change of game conditions in the Russian economy. Namely, monetary authorities will shift from policy to curb inflation at any cost, including through an uncontrolled rate, to a policy of stimulating economic growth.

Indeed, now the key rate of the Central Bank is 11% per annum. In practice, this means that even the most reliable borrowers, banks can issue loans at a rate of 15% per annum. A number of entrepreneurs (for example, in a trading business) this can be arranged, but for the implementation of major industrial projects, such as the creation of new aircraft, is absolutely unacceptable, projects this debt not be repaid.

However, until now, the Central Bank adhered to a very strict policy: interest rates must be high, to avoid a surge in inflation. That made sense: with a long-term perspective, low inflation is one of the main criteria of attractiveness of the economy because investors do not bear significant risk of impairment of their investments.

Now, it seems, the logic changes. It becomes clear that to a “bright future” of low inflation and high investment demand, the Russian economy can not survive will die on the road. So – to cut interest rates in the money market. Which largely determines the Bank of Russia providing loans to commercial banks.

Therefore, the projections of Bank of America are quite realistic in General, they correspond to precisely the policy which in the current situation it would be worth to choose the Russian authorities.

However, while the monetary authorities are in no hurry with such decisions. The Board of Directors of the Bank of Russia at a meeting in late January has left its key rate unchanged at 11% per annum. At the same time, the regulator in its release did not rule out tightening of monetary policy, that is growth rates. The next meeting of the Board of Directors of the Central Bank rate will be held on March 18. The Central Bank policy of inflation targeting intends in 2017 to achieve inflation at 4%.

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