On Friday, February 7, the Board of Directors of the Bank of Russia following the results of the first meeting in 2020 reduced the key rate by 0.25 percentage points to 6% per annum. The value has become the lowest since March 2014.

The regulator has reduced the rate for the sixth time in a row. According to an official statement by the Central Bank, consumer price growth in Russia is still slowing faster than expected. In January, annual inflation in Russia fell below 3% and reached 2.4% - for the first time since June 2018. According to the Central Bank, by the end of 2020, this figure may increase and amount to about 3.5-4%.

“The slowdown in inflation is faster than predicted. The inflationary expectations of the population and the price expectations of enterprises as a whole remain stable. The growth rate of the Russian economy increased in the second half of 2019. The risks of a significant slowdown in the global economy remain, ”the Central Bank said in a press release.

Recall that the last change in the key rate of the Central Bank occurred in December 2019. Then the regulator lowered it from 6.5% to 6.25% 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 March 20. According to RT analyst at the Russian stock market IC Freedom Finance Alexander Osin, already in the course of his first spring meeting, the top management of the regulator can again reduce the rate and lower it to 5.5% per annum.

If the development of the economic situation meets the forecasts of the Central Bank, the regulator will assess the possibility of further reducing the key rate in 2020. This statement was made by the head of the Central Bank Elvira Nabiullina at a press conference on February 7.

“There is a relatively high probability of a rate cut at the next meeting, but it is not guaranteed. Could there still be a rate reduction - it depends on how we evaluate the economic situation, what data will be received, what will happen with inflation, and not only with current inflation - first of all, how we will refine our forecast for inflation and economic growth, ”Nabiullina emphasized.

According to her, in the first quarter of 2020, inflation in Russia will remain around 2%. According to RT leading analyst at QBF Oleg Bogdanov, the observed slowdown in price growth will allow the Central Bank to further reduce the rate.

“By the end of 2020, the key rate of the Central Bank may fall to 5% per annum. If inflation does not accelerate in the fall, the regulator will have the opportunity to lower the rate even lower, ”Bogdanov explained.

As analysts explain, lowering the rate is necessary to stimulate business activity in the country and economic growth in general.

In particular, experts expect a more active reduction in mortgage rates amid the policy of the regulator. According to the latest data from the Central Bank, in 2019, the average mortgage rate in Russia dropped to 9% per annum. The value became the lowest for the entire time of observation. At the same time, experts do not exclude the achievement of the 7-8% mark already in 2020.

“According to the results of 2020, the average mortgage rate may well drop to 7-8%. For comparison, only a year ago this figure was close to 10%, ”said Arseniy Dadashev, director of the Academy of Financial and Investment Management, in a conversation with RT.

Currency reaction

Experts interviewed by RT highly appreciated the likelihood of a decrease in the Central Bank's key rate to 6% per annum. According to Anna Bodrova, senior analyst at Alpari Information and Analytical Center, 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 neutral effect on the ruble.

After the announcement of the results of the meeting of the Board of Directors of the Central Bank, the Russian currency showed a slight weakening during trading on the Moscow Exchange. The US dollar grew by 0.8% to 63.9 rubles, and the euro - by 0.65%, to 70 rubles.

The official exchange rate of the Central Bank on February 8 was 63.47 rubles per dollar and 69.63 rubles per euro.

According to analysts, the regulator’s policy primarily affects the Russian government securities market. Reducing the Central Bank rate over time reduces the yield of federal loan bonds (OFZ), so investors are trying to pre-purchase securities at a bargain price. At the same time, the rush of money flow into Russian OFZs may support the national currency.

“From the point of view of investments, OFZs remain more attractive than government securities of developed countries. Moreover, interest in Russian assets is supported by macroeconomic factors: reduction in inflation and public debt, high international reserves and a surplus budget. All this supports the demand for Russian bonds and currency, ”said Mark Goikhman, TeleTrade chief analyst, to RT.

According to the expert, currently the market panic around the coronavirus and a sharp drop in oil prices are putting some pressure on the ruble. At the same time, the analyst does not expect significant fluctuations in the national currency in the near future. According to his forecast, until the end of the first quarter of 2020, the dollar will remain in the range of 62–65.3 rubles.