The Russian Central Bank has dropped its key interest rate from 17% to 15%. This is stated in a press release of the Bank of Russia.
"The Board of Directors of the Bank of Russia on January 30, 2015 decided to cut the key interest rate of 17.00% to 15.00% per annum, given the change in the balance of risks accelerating the growth of consumer prices and the cooling economy. The Bank of Russia's sharp increase in the key rate adopted on December 15, 2014 has led to the stabilization of inflation and devaluation expectations to the extent expected by the Bank of Russia," the agency said.
The Central Bank believes that inflationary pressures will be restrained by a decrease in economic activity. Current monetary conditions set the ground for inflation decline in the medium run. This decision came as a surprise to many, as significant changes in the direction of improving the economic situation in the country was not mentioned, RIA Novosti reports.
In connection with the news about lowering the key rate, the US dollar during trading on the Moscow stock exchange broke the psychological barrier of 70 rubles for some time and reached 71 rubles, the euro broke the barrier of 80 rubles and reached 80.5 rubles. As of 13:36 (MSK), the dollar fell again to 69.93 rubles, the euro fell to 79.37 rubles. Soon, however, the ruble continued to decline again: at 13:50 the dollar rate was 70.61, the euro was 80.17.
The deputy chairman of the State Duma Committee on Financial Markets, Anatoly Aksakov, told Vestnik Kavkaza that he had appealed to the Central Bank with a request to reduce the key interest rate to 15% two weeks ago. "I justified this by saying that the key interest rate is not the most important tool of regulation, that affecting the ruble. Since the dependence of the foreign exchange market on the rate of the ruble is quite low, its increase has no special meaning. If we talk about inflation, in this case the key interest rate is not only a factor in appreciation of money, but also a guide - inflation is shaped under the influence of expectations as well. Seeing a rate of 17%, business incorporates these percentages in their expectations, their prices, and inflation is picking up again," he explained.
The expert noted that the decrease in the key rate will help reduce business expectations about inflation, which currently depends more on the devaluation of the ruble. "Import prices rose last year, which determined the rate of inflation, and now the devaluation effect is already exhausted. I believe that in the second quarter it will run out of his influence. For this reason, and in accordance with the fact that the key rate is not critically to do with the exchange rate, nor in determining the level of inflation, the Central Bank, obviously, made the decision," he concluded, adding that he agreed with the regulator that the optimal key interest rate should be equal to 8%.
"I think it's a rather emotional outburst, which goes off quickly. Within a day or two we will have returned the euro and the dollar to their equilibrium values, determined not by the key interest rate but by the oil price," the deputy chairman of the Duma Committee on Financial Markets said.
In his turn, the director of the Institute for International Economic and Political Studies at the Russian Academy of Sciences, Ruslan Grinberg, expressed the view that the decrease in the Central Bank key rate is a half-measure, which leads to nothing."It only gives a signal about the direction in which the Central Bank is moving. In fact, it will mean little. The key rate should be reduced radically, and this should be done only in conjunction with the introduction of exchange controls and currency interventions, as well as the protection of some course," he said.
"Today no one knows how to enter into contracts, what course to choose. I think that today foreign exchange restrictions are necessary, the mandatory sale of foreign currency earnings should be provided for rubles," said Greenberg, noting that the government is skeptical, thinking about this as some kind of Soviet measure that will lead to the mythical black market.
In addition, the fall of the ruble against the dollar and the euro at the same time with a reduction in the key interest rate he pits down to the fact that the players do not take it seriously. "It's only a psychological course, it is absolutely unproductive and no one is able to somehow change the situation," the director of the Institute of Economics concluded.
