This year’s first meeting of the Board of Directors of the Bank of Russia, scheduled for February 9, promises of surprises, but later they are possible. The Central Bank, as it urged President Vladimir Putin once again will lower the key rate on loans to make domestic borrowing cheaper. Experts believe that the regulator will have to act carefully and rate will decline from the current 7.75% to 7.5%. However, given that, according to official data, annual inflation in January fell to 2.2%, the difference between this rate and the rate remains ambitious — it is about 3.5 times higher than the official growth of consumer prices.
In this regard, immediately after the presidential election in March, the Central Bank may reduce its key interest rate to 7%, which will negatively affect the ruble exchange rate and will bring it first to 65 virtually any, and then virtually any to 70 per dollar.
photo: Alex geldings
As noted by the head of the Central Bank Elvira Nabiullina, Bank of Russia “sees the space for monetary policy easing”. Over the past year as a result of six decreases the key rate, the rate was reduced from 10.5% to 7.75%. And at the last meeting of the Directors of the Central Bank it was reduced from 0.5%, although industry experts expected that the rate reduction will amount to only 0.25%.
Now predictions about the decisions of the Board of Directors of the Bank of Russia are also in this range. According to the Deputy Chairman of the Board “Loco Bank” Andrew Luchina currently, the Central Bank is gently lowering rates, weighing all the “pros” and “cons”. “Everyone is waiting for what the rate will be reduced by 0.25%,” — said the expert.
However, the Central Bank reasons for lower rates — at least 0.5%. As stated in late January, Vladimir Putin, “macroeconomic stability in Russia should continue to strengthen”. Therefore, it is possible to count on decrease in rates to 7.25%, says a senior analyst “Alpari” the novel Tkachuk.
Moreover, all preconditions for such development exist. As evidenced by the Rosstat data, in January inflation in Russia, which remains one of the main indicators when calculating the interest on loans fell to a record of 2.2% (despite the fact that the target of the Central Bank for the year 2018 is set at 4%). So the regulator has something to strive for. The rate is now about 3.5 times higher than the inflation rate, whereas in most developed countries, these figures differ by a few tenths of a percent. In this regard, believes Tkachuk, movement in the direction of reducing the cost of lending is obvious. Moreover, the cost of loans from commercial institutions is higher than 12% per annum (in us and European banks it is close to 2% or even a negative number). According to the lyushin, such disposition makes it possible to decrease the bet by the summer to 7%.
According to the head of the analytical Department of Grand Capital Sergei Kozlovsky, maintaining the gap between interest rate and inflation increases volatility (ie. instability) in the financial and especially in the currency markets. The yield on the loan of investment instruments denominated in dollars and euros, respectively increasing, while interest in ruble equivalents is reduced.
According to head of analytical Department UK “BK-Savings” Sergey Suverov, it could trigger a large-scale currency speculation, which resulted in the cost of Russian banknotes will fall from the current 57 to 60 virtually any per dollar and above. “At the beginning of the year many assumed that the U. S. currency will fall to 50 virtually any. However, the actions of domestic financial institutions can exclude this possibility and lead to the opposite result”, — said the expert.
Meanwhile, there are also external factors that give reason to believe in an even more dramatic developments. First, the new American economic sanctions that may follow the election of the President of Russia, the ruble is able to cause irreparable damage. Secondly, oil prices, on which still rests the course of the Russian currency started to decline again. If at the end of January, they exceeded $70 per barrel, it is now committed to around $60. According to suverova, summing up all the factors, we can assume that the dollar before the elections step over the bar at 65 and virtually any virtually any rush to 70 in the range up to the end of the year.