Central Bank may consider monetary easing if inflation slows to target
MOSCOW. Sept 16 (Interfax) - The Central Bank of Russia will think about easing monetary policy if inflation slows to target, the Central Bank said in its Monetary Policy Report.
"The current monetary policy stance facilitates gradual slowdown in consumer price growth. According to the Bank of Russia's forecast, inflation is expected to reduce to the target of 4% in the medium term, unless new negative developments occur. A gradual exhaustion of the impact on prices from the restrictions on the import of certain groups of food products from a number of countries imposed in August 2014, exchange rate dynamics stabilisation, low demand pressure due to the aggregate output of goods and services remaining below potential and a fall in inflation expectations will also be conducive to the slowdown in consumer price growth," the Central Bank said.
"At the same time, high inflation risks currently persist and their materialisation may lead to inflation deviating from the target in the medium term. These risks are associated with the uncertainty of further development of the external economic situation and its impact on the ruble exchange rate dynamics and economic agents' expectations. Possible changes to the government's tax policy may also have a strong impact on prices. While determining its monetary policy parameters, the Bank of Russia will take into account the need to ensure inflation slowing to the target without creating risks to economic growth stability," it said.
"In September 2014, the Bank of Russia decided to keep the key rate unchanged at 8.00% after its increase by 50 basis points in July. The current stance is conducive to achieving the medium- term inflation target of 4%. The announcement of sectoral sanctions against the Russian economy by Western countries and the imposition of embargo by Russia on the deliveries of certain types of goods from a number of countries resulted in inflation acceleration and aggravation of economic growth prospects. If the said factors affect prices of a wide range of goods and services and if there is a threat of inflation exceeding the target in the medium term, the Bank of Russia may continue raising the key rate."
"Following the June acceleration to a six-month high (7.8% on the corresponding period of the previous year) consumer price growth slowed down to 7.5% in July, due primarily to lower indexation of administered prices and utility tariffs. Foreign exchange market stabilisation facilitated, inter alia, by the rise in the Bank of Russia key rate in March-April 2014 became an additional factor restraining inflation. According to the forecast published in the Monetary Policy Report in June 2014, further inflation reduction was expected in the second half of 2014. However, the imposition of restrictions on the import of certain types of goods from a number of countries led to consumer price growth acceleration in certain markets. According to estimates, the annual rate of consumer price growth stood at 7.7% as of 8 September 2014. The scale of further influence of the said factor on prices will depend on the speed of change in suppliers of these goods and the abilities of the import- substituting industries to expand output. The additional contribution to annual inflation connected with import restrictions may amount to 1.5 percentage points and will be made before mid-2015. As a result, consumer price growth rate is likely to remain in excess of 7% till the end of 2014."
