The Board of Directors of the Russian Central Bank has decided to maintain its key rate at 11% at today's meeting.
The country's financial regulator explained its decision was due to the fact that currently there is an increase in inflationary risks as well as possible further decline in economic activity in the Russian economy.
The Central Bank believes that the relatively tough monetary conditions and slack domestic demand will drag down annual inflation, despite the fact that the depreciated ruble will continue to put pressure on prices in the next few months.
The Bank of Russia said that the decision on the level of the key rate will be made on the basis of how the factors that influence the risk of inflation and to cool the economy behave.
The next meeting of the Board of Directors of the Russian Central Bank is scheduled for October 30.
The chairman of the National Foreign Exchange organization, Dmitry Piskulov, said in an interview with a correspondent of Vestnik Kavkaza that the key interest rate has reached quite a stable level, after which a decrease would only hurt the situation.
"The Central Bank, reducing the rate at the beginning of the year, based on the fact that the high rate interferes with lending in the economy. Therefore, the Central Bank has beeen reducing it consistently," the expert reminded.
"However, the rate has reached 11%. From the perspective of the Bank of Russia, this is a normal equilibrium level," he stressed.
If they lower the rates further it will have a negative impact on the ruble, he noted. "The cheapening of money may affect the fall in the value of the ruble, which is not the purpose of the Central Bank," Piskulov stressed.
"In addition, the monetary policy of the Bank of Russia suggests keeping the key rate at the level of inflation. While the annual inflation rate is staying at 15%, which is higher than the key rate, though in recent months inflation has been close to zero. However, we saw the accumulated the effect of inflation after the last jump of the dollar," the chairman of the National Foreign Exchange organization said.
"Most likely, the growth of the key rate is improbable, because GDP is in decline, the Ministry of the Economy predicts a further decline, even deeper than they previously thought. So I think that probably there will be no increase in the rate unless there are some external shocks, for example, a very serious attack on the ruble," Dmitry Piskulov concluded.
The head of the expert-analytical management of the financial agency of the government of Moscow, Dmitry Miroshnichenko, also believes that under current economic conditions a reduction in the key rate would be unwise and probably its last reduction was also unnecessary.
"We have no conditions for further decline. In my opinion, even the last drop to 11% was excessive. The increase in inflationary pressures and developments in the foreign exchange market which cause the inflation are factors that we see only now," he said.
On the other hand, an increase of the key rate is not desirable either. "Technically, growth could take place, but it would not solve global problems," the expert noted.
Moreover, such a contradictory policy of the Central Bank could worsen the economic situation, causing distrust of the regulator. "People got used to the rate, which is reduced, and suddenly it starts to rise. There is a risk that people will say that the Bank of Russia does not know what it wants or what to do. The most important weapon of the Central Bank is confidence," he explained.
"Statistically, even today we could await an increase in the key rate. But 11% is a kind of compromise," Dmitry Miroshnichenko concluded.
