Bank Rossii keeps key rate at 7.0% and plans to not decrease it for several months

RUSSIA ENERGY / FINANCE - In Brief 14 Mar 2014 by Marcel Salikhov
At today’s regular meeting CBR’s Board of Directors decided to keep key rate at 7.0% citing ‘limiting inflationary consequences of recent FX rate changes and supporting financial stability’ as major reasons. On March 3, 2014 key rate was increased 150 b.p., from 5.5% to 7.0% on the back increased pressure on RUB. The increase was named ‘temporary’ but in today’s press-release CBR stated that it plans not to lower key rate at least for several months. Such an outcome was expected. There is such a huge uncertainty right now including future outcome of Crimean referendum and possible Western sanctions against Russia as well as possible Russian response. In such an unpredictable environment it is rational for the CBR to keep rates at elevated levels. We think that CBR is indeed will not decrease rates until more certainty about economy doesn’t appear after all these geopolitical tensions. If pressure on RUB intensifies due to some ‘black swan’ event further rate increase is likely to follow. Inflation seems also to pick-up. February inflation came at 6.2% y-o-y vs. compared to 6.1% in January. At the same official CBR's inflation forecast is left at 5.0% with 1.5% range in both directions (i.e. 3.5-6.5%).

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