MOSCOW: The Board of Directors of the Bank of Russia at a meeting on Friday decided to keep the key rate at 9% per annum, the regulator said in a press release. The Bank of Russia notes prospects for further slashing the key rate in the second half of 2017. “While making its decision hereinafter, the Bank of Russia will assess inflation risks, the inflation dynamics and economic developments against the forecast,” the Central Bank said. The Board of Directors notes that inflation remains near the target level, and the recovery of economic activity continues. At the same time, short-term and medium-term inflation risks remain.
According to the press release, inflationary expectations were temporarily suspended, which was a predictable reaction to dynamics of prices for a number of goods and services. In order to maintain inflation near the target value of 4%, the Bank of Russia will continue to pursue a moderately tight monetary policy. Moderately tough monetary conditions will “remain in place for a long time for inflation to become anchored close to target,” the Bank of Russia said. “Inflation remains close to the target. June saw a slight short-term rise in inflation to 4.4%, which came as a result of price movements in fruit and vegetables under the influence of bad weather conditions. At the same time, the trend towards sustainably low inflation remains in place,” the regulator said. “The weakening of the ruble in June and July had no meaningful implications for annual inflation and inflation expectations, given its substantial strengthening observed since early this year. For inflation to become anchored close to the 4% target, sustainable decline in inflation expectations in required,” the regulator said.
“Economic growth is nearing its potential level. It is constrained, among other things, by the situation in the labor market where shortages of labor force are already visible in some segments. Further GDP growth above 1.5-2% a year is attainable if structural reforms are put in place,” the Bank of Russia said. The regulator at the same time maintains the outlook for national GDP growth in the range of 1.3-1.8% in 2017. “The economic activity is rebounding. Positive trends in industrial production are gaining momentum, freight turnover is growing, and construction has turned to recovery. Growth in household consumption expenditures went up along with the increase in investment and production. A moderate increase in consumer spending is not adding inflationary pressure as the supply of goods and services expands,” the Bank of Russia said.
