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Russia’s Central Bank keeps key rate at 7.25%

July 27, 14:47 UTC+3 MOSCOW

The regulator expects consumer prices to grow by 3.5-4% per year at the end of 2018

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© Artiom Geodakyan/TASS

MOSCOW, July 27. /TASS/. The Bank of Russia has decided to keep the key rate at 7.25% per annum, noting that monetary policy is highly likely to shift to a neutral stance in 2019.

"Though annual inflation remains below the target, it is tending to return to 4%," the regulator said in a statement following its board meeting on Friday. "The balance of risks is shifted towards proinflationary risks. Uncertainty persists over how strongly the tax measures may affect inflation expectations and how the external conditions will develop," the statement said.

The decision was expected as the majority of analysts projected on Thursday that the Central Bank would keep its key rate, waiting for the business’ reaction on the upcoming VAT hike and amid growing inflationary expectations.

According to the regulator, monetary policy is likely to shift to a neutral stance in 2019. "Given the effect of the planned fiscal measures on inflation and inflation expectations, monetary conditions should remain to some extent tight to limit the scale of secondary effects and stabilize annual inflation close to 4% over the forecast horizon," the Bank of Russia said on Friday.

Meanwhile, the balance of risks is shifted towards proinflationary risks, which the regulator said is related to uncertainty persisting over how strongly the tax measures may affect inflation expectations and how the external conditions will develop.

The regulator expects consumer prices to grow by 3.5-4% per year at the end of 2018, and annual inflation to temporarily overshoot 4% in 2019. "The annual growth rate of consumer prices is expected to return to 4% in early 2020," it said.

According to the Central Bank, annual inflation remains low. "It stood at 2.3% in June and is expected to hold within the 2.5-2.6% range in July in line with the Bank of Russia’s forecast," the statement said.

The Bank of Russia forecasts that in 2018 the Russian economy will post a 1.5-2% growth rate, which corresponds to its potential amid the remaining structural limitations.

"The FIFA World Cup made a positive contribution to the annual GDP growth rate in Q2 (0.1-0.2 percentage points)," the statement said.

The regulator’s board of directors will hold its next key rate review meeting on September 14, 2018.

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