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Sunday, March 18, 2018

The Central Bank lowered the key rate with the ruble

The Central Bank has committed itself to lowering of the key rate. The Board of Directors of the Bank of Russia reduced the rate from 9.75% to 9.25%. As such actions of the Bank of Russia will affect the Russian economy and the public purse, we have found from experts.

photo: Gennady Cherkasov

For the first time in the last six months, the Central Bank lowered the rate at the end of March, from 10% to 9.75% per annum. The Central Bank prefers a rather cautious steps: after all, inflation in March fell to a record low of 4.1% ( in annual terms). And the rate is more than 2 times higher than this figure.

Mark goykhman, leading analyst GK TeleTrade: “Lowering the key rate will affect the value of loans and deposits. If the rate is lower for companies to take money in banks and invest them becomes more profitable. Therefore, to stimulate economic growth, the Central Bank and reduced rate.

But for ordinary people this step is also important. The fact is that, getting more cheap money from the Central Bank, credit organizations will also begin to gradually reduce their interest – about the magnitude of the rate cut. That is, loans to people will be a little more affordable. Although interest rates on deposits will also decline.

In addition, the key rate affects the exchange rate. Reducing it makes it less profitable for foreign investors to invest in ruble deposits or bonds. The demand for rubles in the market is weakened, and the rate of our currency will decline, ceteris paribus. But since the rate cuts have been minor, the significant and rapid changes of course to be expected”.

Mikhail Belyaev, chief economist of the Institute of stock market and management:

“As we all remember, the Central Bank promised to decrease inflation to reduce the key rate. Inflation is now significantly less than 5%. And, according to the regulator, there are all prerequisites that the end of the year this figure will reach 4%. However, so insignificant against this background, the reduction of the key rate is unlikely to significantly impact on the Russian economy.

This is a step in the right direction. However, it had to be done long ago. For the economic development of the necessary key stake of 4-6%, which corresponds to the current level of inflation. Minus 0.5%, the Russian economy will experience virtually no. But the Central Bank’s decision at least suggests that the chain of steps in this direction will continue and the market will react to such a signal.

Now there are some positive developments in the economy. But this is not a merit of the Central Bank and the government. The business simply has adapted to a pretty strict conditions. And now we see positive results in agriculture, light industry, chemistry. Further lowering the key rate will give let small, but nevertheless will give impetus to the development of these and other industries.

As for the population, the lowering of the key rate means lowering rates on deposits. But it will decrease interest rates. However, here the reason is not in the key rate. Now lending activity is reduced and banks are forced to cut rates. To do this, they invent products for specific social groups — the military, pensioners, public sector. These people have even less disposable income, but they are stable. That is, the Bank can expect that their money will eventually return. And therefore it lowers interest rates, thereby attracting customers.”

Ivan Antropov, first Deputy Director of the Institute of contemporary Economics:

“The reduction of the key rate by 0.55, it was the most expected scenario. This solution allows the Central Bank to sit simultaneously on two chairs. On the one hand, the regulator like to satisfy the critics of his still very tight monetary policy. Wanted the reduction of the key rate – get and not complain. Ignore these requests was already extremely difficult, especially after the head of the Ministry Maxim Oreshkin said that inflation is dropping too fast. It is the policy of the Central Bank became one of the main reasons for the merciless fight against inflation.

But, on the other hand, the reduction of the key rate of 0.5% is so small that fundamentally changes nothing. CB still not see and does not want to see their role in the economic development of the country, pursuing only their own goals. We need to strive for the key rate close to the rate of inflation”.

Read the story “Three ways to bring down the ruble: the government “worship” oligarchs”


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