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Monday, October 24, 2016

CB left alone key interest rate, which could trigger inflation

The Bank of Russia did not soften its monetary policy and kept its benchmark rate at 10.5% per annum. In this decision, no doubt. According to the Central Bank, the current rate will allow to maintain a balance in the banking sector, and cheap loans, in contrast, will increase inflationary pressure. Independent experts believe that the rate of the Central Bank has no serious impact on inflation. The fall of the ruble, as the price increases, more dependent on oil prices, which are now rapidly falling, and if this trend is not reversed, inflation for the year will jump at least to 8%.

photo: Alex geldings

This year, the Central Bank reduced the key rate once in June. After a ten-month freeze it dropped from 11% to 10.5%. Now, keeping the rate at current level, the regulator is guided by the following logic. Moderately tight monetary and credit conditions allow to maintain a balance: loans will be the borrowers, and Bank deposits will not lose appeal.

Also, according to the Central Bank, such rate continues recovery in manufacturing activity, and this is happening against a background of weak demand and lead to growth of consumer prices. Overall inflation is slowing. According to the forecast of the Bank of Russia, a year later, in July 2017, will fall below 5% by the end of 2017 to reach the target level of 4%. By the way, the Minister of economic development Alexei Ulyukayev, in turn, promises that in 2016, inflation will be much below 6%.

Nevertheless, the Central Bank acknowledges the risk that inflation will fall to 4% by that time. Therefore, the regulator promises that it will consider lowering the key interest rate. We will remind, the next meeting of its Board of Directors will be held in September.

On the one hand, the Bank of Russia’s rights: the situation in our country, like getting better. According to the Ministry of economic development published in the monitoring of the current situation in the economy in the first half of 2016″, if the first three months, the domestic GDP decreased by 1.2% from the same period in 2015, in the second quarter fell by half to 0.6%.

In June increased agricultural production, although only slightly (+0.1%). Growth was recorded in mining and quarrying (0,1%), treatment (0,5%), production, distribution of electricity, gas and water (0.2 percent).

But, on the other hand, there are also negative moments. In June, the real wage declined by 0.1%. If you take the number of indicators for six months, then it’s even worse. In January–June exports of goods from Russia fell by 29.7% (the same period of 2015, while imports decreased by 9.5%. The production of passenger cars in six months declined by 18%.

The Russian currency also does not inspire confidence. Only in the past 10 days the dollar has risen from 62 to 67 rubles and stay collected.

This can lead to very unpleasant consequences. According to Rosstat, inflation from the beginning of the year was 3.3%. If this goes on, the figure will be released for the promised Ulyukaev limits.

Apparently, the Russians, as before, can only hope for one thing — oil. Yet faith in raw materials is quite weak: since the beginning of June quotes the “black gold” fell by $10 to $42 per barrel. According to the leading expert of Institute of modern development Nikita Maslennikov, not so long ago a number of representatives of the economic bloc of our government declared that the ruble is “rid” the cost of oil

“Of course, it is not. In July, the national currency has strengthened by two traditional reasons: the end of the tax period, when the budget is replenished several large payments, and dividend payments to shareholders of large companies, which in total was spent to 1.3 trillion rubles. Now oil the trend again went down, and with it, of course, the ruble began to fall in price”, — said the expert.

According to him, the average annual price of Urals will be just above $38. Then the “wood” will continue to become cheaper: in such favorable conditions, the dollar is able to take the bar 70 rubles in September and for how long there is to strengthen.

It is hoped that the rising oil prices eventually did resume. “If it happens in the next two to three months, the calculations of the Central Bank that inflation will be in the range of 5-6% is realistic,” says Maslennikov.

If the price of “black gold” will continue to decline, the fall of the Russian currency will keep hard. The dollar will aim for 75 rubles, and inflation, quite possibly, we will see at the level of 8-10%.

A anchor ready to quit the government. As stated by Prime Minister Dmitry Medvedev, the Cabinet optimizes social spending, but will not affect social programs. It is necessary to understand which programs are meaningful, and what you can sacrifice.

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