Bank of Russia remains 7.75%

RUSSIA / FSU POLITICS - In Brief 15 Feb 2019 by Alex Teddy
As expected the Bank of Russia retained the benchmark rate at 7.75%. Inflation was the stated reason for this. In January inflation was at 5.5% YoY. This is at the lower end of what CBR forecast. Inflation in 2019 is predicted to be from 5.5% to 6%. Likely it will be highest in the middle of the year and then fall. A couple of months ago CRB hinted at a rate increase. The CBR also thinks that the risk of capital outflow is down. The VAT increased in January was only passed on to consumers gradually. Business sensed that demand was falling. Yet GDP growth for 2019 is forecast at between 1.2% and 1.7%. The overall effect on markets is likely to be less volatility in the short term. 'Stability' is the watchword of Russian economic policy. However, Russian financial markets are likely to start suffering when another round of US sanctions kicks in a few weeks from now. The RUR was probably due to decline (it has been surprisingly strong for a few months). But upcoming bad news will lead to a steeper decline in the RUR than would have been expected. All this means that inflation will start to accelerate. The one bit of good news is that oil prices will start to increase over the next few months as tensions between Iran and the US rise. That can only be a boon for the Russian economy.

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