Stimulus for the economy: the Central Bank lowered its key rate to 6.25% per annum

On Friday, December 13, the Board of Directors of the Bank of Russia lowered its key rate by 0.25 percentage points to 6.25% per annum. The value has become the lowest since March 2014.

In 2019, the Russian regulator has already reduced the rate for the fifth time.

According to an official statement by the Central Bank, consumer price growth in Russia is still slowing faster than expected. According to recent estimates, inflation has already fallen to 3.4%, and by the end of the year it will reach 2.9-3.2%. As expected by the Central Bank, in 2020 the figure will be about 3.5-4%, after which it will remain near the target mark of 4%.

“The slowdown in inflation is faster than predicted. Inflationary expectations of the population continue to decline. The price expectations of enterprises as a whole have not changed. The growth rate of the Russian economy in the III quarter increased, but it is still difficult to assess their sustainability. The risks of a significant slowdown in the global economy remain, ”the Central Bank press release said.

Note that the last change in the key rate of the Central Bank occurred in October. Then the regulator lowered it from 7% to 6.5% per annum and also explained this decision as a sharp slowdown in inflation.

The next meeting of the Board of Directors of the Central Bank is scheduled for February 7. Meanwhile, in 2020, the Central Bank can maintain interest rates at the current level. According to RT, the head of the analytical department of Veles Capital investment company Ivan Manaenko, the regulator will need time to assess the situation in the economy and on the world market.

“The Bank of Russia has the opportunity to take a wait and see attitude during the first three months of 2020 and follow developments in the world. In addition, the first quarter is famous for its outbursts of inflation, and it is not yet known exactly how much it will be within the framework of the forecast, ”said Manaenko.

If the development of the economic situation meets the forecasts of the Central Bank, the regulator will assess the feasibility of further reducing the key rate in the first half of 2020. This statement was made by the head of the Central Bank Elvira Nabiullina at the final press conference on December 13.

“We still see space to lower the key rate. But in February and at subsequent meetings we will once again comprehensively assess the justification and timeliness of such a step, based on the whole range of new data that we will have by then. A further reduction in the rate will become possible only if our analysis confirms that it is necessary to return inflation to the target of the Bank of Russia near 4%, ”Nabiullina emphasized.

According to the assessment of the head of the Ministry of Economic Development Maxim Oreshkin, in the first quarter of 2020, inflation in Russia may fall below 2.5% due to weak consumer demand. The minister said this on December 12 at a meeting with representatives of the Association of European Businesses.

As QBF lead analyst Oleg Bogdanov explained in an interview with RT, a slowdown in price increases will allow the Central Bank to further reduce the rate.

“Taking into account the comments of the Minister of Economic Development, if the Central Bank keeps the key rate two percentage points higher than inflation, then in 2020 the Bank of Russia rate can calmly drop to 5% per annum,” Bogdanov said.

Mortgage record

Lower rates are necessary to stimulate business activity in the country and economic growth. So, in the long run, the actions of monetary authorities lead to cheaper loans, an increase in domestic demand and investment. This was in an interview with RT by Viktor Nikolaev, a member of the board of FC Otkrytie Bank.

• Viktor Nikolaev on the impact of the Central Bank rate on business and the cost of mortgages

“We see a decrease in interest rates for financing corporate borrowers, and we hope that the business will invest more in the development of new projects. Of course, now we also see historically low values ​​of mortgage rates, which were also influenced by the policy of the Bank of Russia, ”said Nikolaev.

In December, the 10 largest Russian banks average mortgage rate for the first time dropped below 9% per annum. This is stated in a study of the bank DOM.RF and the company FRG. As Elvira Nabiullina noted, the Central Bank sees opportunities to reduce the mortgage rate to 7-8%.

According to the program of the national project “Housing and Urban Environment”, the percentage of housing loans should decrease to 8.7% in 2020, then to 8.5% in 2021 and 7.9% in 2024. However, a real reduction in the cost of mortgages can occur faster than the expectations of the authorities. This was told in an interview with RT by the head of the analytical research department of the Higher School of Financial Management Mikhail Kogan.

“In the case of another decrease in the key interest rate of the Central Bank by 0.25 percentage points in 2020, the interest on mortgage loans could eventually amount to 8.5%,” Kogan said.

Inflow of money

Experts interviewed by RT highly appreciated the likelihood of a decrease in the key interest rate of the Central Bank to 6.25% per annum. According to Ivan Manaenko, investors in their actions took into account the decision of the Bank of Russia in advance, therefore, reducing the rate in the short term will have a limited effect on the ruble.

At the same time, at the time of the announcement of the results of the meeting of the Board of Directors of the Central Bank, the Russian currency was record-breaking during trading on the Moscow Exchange. The US dollar depreciated by 1% - to 62.2 rubles - for the first time since July 31, 2018. At the same time, the euro fell by 0.6% to 69.5 rubles, and updated the minimum since March 2018.

It is curious that the sharp strengthening of the national currency started even the day before. One of the main reasons for the appreciation of the ruble was the situation on the Russian debt market. Reducing the Central Bank rate over time lowers the yield of federal loan bonds (OFZ), so investors are trying to pre-purchase securities at a bargain price. According to analysts, it is the rush of money flowing into the Russian OFZ that supports the national currency.

“Our assets remain very attractive due to continued high returns, and the stock market generally remains out of competition. Therefore, the flow of funds continues, ”said Oleg Bogdanov.

In addition, the Russian currency was supported by a marked increase in world oil prices. During trading on the ICE exchange in London, the raw materials of the Brent benchmark rose immediately by 1.3% - up to $ 65 per barrel. The last time a similar value could be observed in mid-September.

However, the influence of commodity quotes on the ruble is limited by the budget rule, which stipulates that, during periods of rising oil prices, the Ministry of Finance buys foreign currency and thereby puts pressure on the ruble. Moreover, in the event of a collapse in the energy market, the ministry ceases operations - and pressure on the ruble weakens. As a result of such actions, the dependence of the national currency on oil prices is reduced.

Recently, the effect of the budget rule has reduced the relationship between the ruble and oil, but currency market players still sometimes react to sharp changes in commodity prices.

“Although the budget rule weakens the influence of oil prices through the current account of the balance of payments, high quotes reduce the risks of investing in Russia and maintain the flow of capital,” Mikhail Kogan explained.