Rouble strengthens after Russian central bank cuts rates, as expected
By Alexander Bueso
Date: Friday 14 Jun 2019
(Sharecast News) - Russia's central bank took back its late 2018 pre-emptive interest rate hike as it revised its near-term forecasts for inflation and economic growth lower, leaving the door open to a another rate cut at one its next board meetings and a possible shift to a "neutral" policy before mid-2020.
The benchmark official short-term rate, the one-week repo rate, was lowered by 25 basis points on Friday to 7.50%, as expected.
In her post-meeting statement, Governor Elvira Nabiullina said the monetary authority had lowered its end-2019 consumer price inflation forecast by half a percentage point to between 4.2-4.7%, including in the "pro-inflationary risks" over a one-year horizon.
Similarly, the rate of GDP growth for 2019 was now pegged at between 1.0-1.5%, down from 1.2-1.7% previously.
Businesses' inflation expectations meanwhile continued to decline over the three months to May, Nabiullina said, while analysts' remained anchored close at the central bank's target for inflation, she said.
And monetary conditions had eased, driven by a lower expected path for official rates in Russia, in major overseas economies.
"Today's decision to cut the key rate alongside the signal we have sent out will work to solidify these trends," she said.
The CBR also bumped up its forecasts for the average price of a barrel of Urals crude oil in both 2019 and 2020 by $5.0 a barrel to $65.0 and $60.0, respectively, although it was seen declining to $55.0 in 2021.
Economic activity was still seen accelerating to 2.0-3.0% in 2021, largely depending on the "timeframes and successful implementation of the national projects along with other fiscal policy decisions."
Nabiullina also weighed in on recent suggestions that Russia should ease its so-called 'golden budget rule', saying it might result in a change of the cut-off price of oil which would lead to a strengthening in the rouble's inflation-adjusted or real exchange rate, thus undermining the competitiveness of Russian products, while calling attention to the need for structural policies.
She apeared to caution: "Alternatively, the stabilising mechanism of the fiscal rule could be undermined, yet again adding to the vulnerability of the Russian economy to fluctuations in external environment."
As of 1507 BST, the US dollar was down by 0.38% to 64.3147 roubles.
"Irrespective of what happens with sanctions, we think that the external backdrop will worsen as weak global growth causes risk appetite to deteriorate," said Liam Carson, at Capital Economics.
"This, coupled with our view that oil prices will stay low, is likely to weigh on the ruble. The upshot is that the easing cycle will be gradual. Our working assumption is that there will be rate cuts at the next three meetings that coincide with the release of new forecasts."
To take note of, at least some recent market commentary had suggested that foreign investors might have grown a tad less pessimistic when it came to the risk of further sanctions being levied on Moscow.
Special promo:
Trading the Forex Market? Visit FXmania.com to get advanced infomation about currencies and the Foreign Exchange
Market.
Email this article to a friend
or share it with one of these popular networks:
You are here: news
10 Lower Thames St,
London EC3R 6EN