The Central Bank of Russia changed the key rate from 14% to 11%. The regulator of the war is about the weakening of inflationary expectations and provisions, as well as the growth of “positive expectations regarding the economic prospects of the country” against the backdrop of a protracted against Ukraine. At the end of February, the Central Bank increased supply from 9.5% to a record 20%.
“The latest weekly data on the slowdown in growth,” – story in a press release from the Central Bank. According to him, the dynamics of the ruble exchange rate of weight loss with a decrease in inflationary expectations of the population and a decrease in the level of inflationary pressure in business. Annual inflation reached 17.8%, but by May 20 it slowed down to 17.5%.
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Inflation and ruble
The decision was made at an extraordinary meeting of the Board of Directors of the Central Bank, the regulator of which was held in advance. The Bank of Russia did not comment on the reasons for changing its schedule, but at the same time the Central Bank published a commentary on inflation expectations.
Inflation expectations – the calculated level of consumers and producers, on the basis of which they determine their monetary position and model of consumer behavior. According to the Central Bank, inflation expectations in May fell to 11.5%, returning to the values of May last year.
Among the prerequisites for growth, the regulator called the appreciation of the ruble and the preservation of “positive expectations regarding the economic prospects of the country.”
After the publication of this message on Wednesday, the Russian currency renewed its highs – the dollar fell below 56 rubles for the first time since February 27, 2018, the euro – below 58 rubles for the first time since June 1, 2015. However, in the afternoon, the dollar again rose above 60 rubles, the euro – above 61.
At first, the ruble at the Mosbirzhe almost did not respond to lowering rates, but later it became sharply higher Decrease – the dollar began to cost more than 63 rubles, the euro – 66 rubles.
The exchange rate of the ruble, which jumped after the start of the invasion of Ukraine, strengthened by significant restrictions on citizens and businesses, which the Central Bank is gradually reducing. Economists doubt whether the ruble can be considered a freely convertible currency under such conditions.
Olga Shamina, Economics Editor of the BBC Russian Service:
“The Russian economy, which is undergoing a new “perestroika,” continues to amaze analysts and even the Central Bank during the war. As of May 20, inflation in annual terms slowed down from 17.8% at the beginning to 17.5%. decline faster than the regulator itself expected.
On the eve of this decision, Rosstat even recorded deflation – prices fell for a short week, which is completely atypical for May. The Ministry of Economic Development immediately explained the deflation by the fact that people in a panic stopped buying goods for the future and demand “normalized”.
However, it could be worse. The Central Bank remains at the enterprise in the country, which still makes tough and seemingly one of the independent decisions. In the first days of the war, he sharply increased the supply, then limited the ability to withdraw and sell the currency – and thus stabilized the ruble in a few weeks. Now the Central Bank of a sharp firm position.
Economists in their reports cautiously link the recent actions of the regulator with a new “surprise” that presents the Russian economy. Perhaps it is not the increase in supply that is worth worrying about, but the fact that the economy is offering too much.
While there are no statistics on GDP, but not collected from Russia, Western companies have left, production has stopped, and goods are not imported into the country – it was the fall in imports that began to increase even more than the excess of the ruble. The currency is simply not needed by anyone, because almost nothing is bought abroad.
Deflation can be a dangerous signal: the population is not just a massive panic buying, but also began to save heavily, it is already clear that an even more severe crisis lies ahead. It is precisely the fact that the consumption of the population (and not the oil and gas sector) was the reason for the growth of the Russian economy in recent years – in the economy this is called a driver.
In order to force the authorities to work again, the authorities also announced an extraordinary indexation of pensions and benefits. Nevertheless, Finance Minister Anton Siluanov on the same day noted that it was impossible to increase the increase in spending, because a serious task lies ahead – “both restoring the economy to new conditions and ensuring the combat readiness of the army.”
The recession of the economy means a decrease in the growth of incomes of the population and – as a result – a drop in living standards. Judging by Siluanov’s definition, the amount of spending to meet the standard of living, and at the same time solve new “military-economic” tasks, will not be enough.
The economy is still going through “perestroika” – this is the word of the first person mentioned by the head of the Central Bank Elvira Nabiullina. Then she reminded me that there were still stocks of goods in the warehouses, which would last for several months.
The Central Bank did not change the supply forecast for this year – 18-23%. If stocks in warehouses run out by the time the business has not yet begun to massively import goods (the ruble should then begin to steadily decline), then inflation will accelerate further – what will be in short supply will rise in price, and no normalization of consumption will help. It will be hard for the population: the rise in prices, the morbidity of jobs and incomes, provoked by the war and sanctions, the consequences of all are poorer.”
“Risks for stable somewhat reduced”
According to statistics, not only inflation expectations, but inflation itself.
On Monday, Deputy Chairman of the Central Bank Alexei Zabotkin said that in the near future there will be a slowdown in price growth for the key rate cut regulator market. In the end, the Central Bank did not wait for the next meeting on the rate, which is expected on June 10th.
The influx of funds for fixed-term ruble deposits continues, and lending activity remains low, which limits pro-inflationary risks and determines the monetary easing program, the Central Bank comments on the situation in its press release on the reduction of the key rate.
At the same time, the regulator stipulates: “External conditions for the Russian economy show that it is extremely restricting economic activity.” And yet, in the opinion, “the risks to his stable condition are somewhat reduced, allowing to soften certain measures to control the movement of weight.”
From 20% to 11%
On February 28 – four days after the invasion that followed and the collapse of the ruble – the Russian Central Bank raised supply from 9.5% to a record 20%. Before that, the maximum was 17% – the Bank of Russia set such a rate in December 2014 against the background of the conflict and hostilities in the production of Ukraine.
On April 8 – also at an extraordinary addition, as now – the Central Bank also lowered the offer to 17%, on April 29 – to 14%.
External conditions for the Russian economy remain significant and limit economic activity, however, risks to price and stable duration continue to mount, which creates conditions for a key rate cut, explaining then the decision of its regulator.
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