The Central Bank of Russia is expected to keep the key interest rate on hold at 10 percent during its meeting on Friday despite the growth momentum being negative and inflation decelerating, noted Nordea Bank in a research report.
Consumer prices fell to a new low in January to 5.5 percent. Moreover, the base effects from high price levels in February and March 2016 suggest that inflation is expected to decelerate further in the months ahead. According to Nordea Bank, inflation is expected to reach a new low of 4.7 – 4.8 percent by the end of the first quarter.
Growth figures have come out mixed. Industrial production saw a significant improvement in December, growing 3.2 percent year-on-year and 0 percent year-on-year average in January-October 2016. GDP dynamics for the whole of 2016 was also quite positive, falling just 0.2 percent. In the meantime, the economy continued to suffer from subdued investment. Capital investment continues to shrink. Furthermore, consumer spending is pretty weak. Retail sales fell 5.2 percent year-on-year by the end of December, whereas real wages rose at quite a low rate of 0.6 percent.
This signifies that the Russian growth momentum is negative and the interest rate is twice as high as inflation; however, the CBR is expected to remain on hold again. This is mainly because the central bank’s statement during the December meeting was quite hawkish and reduces the possibility of a rate reduction in February.
“We expect the next rate cut at the next meeting, which is scheduled for March 24”, added Nordea Bank.
