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Central Bank decision on key rate causes mixed reactions

January 31, 2015, 1:30 UTC+3 MOSCOW
Earlier on Friday the Bank of Russia made a decision to cut the key interest rate from 17 to 15%
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© Artem Korotaev/TASS

MOSCOW, January 30. /TASS/. The Central Bank made a vague decision to support the economic activity in Russia when it cut the key interest rate by 2 percentage points from 17 to 15%, a representative of Russia’s Union of Industrialists and Entrepreneurs said on Friday. He added that this decision does not solve the problem of cutting the cost of borrowing for the real sector of the economy. "Borrowings are still inaccessible, while the risks for banks are still there," he said.

The Union’s representative said that the Central Bank’s policy is still unclear for the business community even for mid-term. "What will the Bank of Russia do if inflation once again surges in Q2 2015? Logically, it will have to once again raise the key rate," he said, adding that the key reasons for the move [interest rate cut - TASS] were lack of consistent monetary policy of the government and the Central Bank, volatility in the currency rates, growing tariffs set by monopolies and uncomfortable business climate in the country.

The Central Bank hiked the main lending rate to 17% from 10.5% on December 15 in a bid to stem the ruble’s slump amid falling world oil prices, western sanctions, a faltering economy and large capital flight. Central Bank Governor Elvira Nabiullina then said that the regulator would be ready to lower the key rate if a steady trend emerged for lower inflationary and devaluation expectations.

Earlier on Friday the Bank of Russia made a decision to cut the key interest rate from 17 to 15%, saying in a comment that the decision to dramatically raise the key rate on December 15 "helped stabilize inflation and devaluation expectations to the extent expected by the regulator."

"The current upsurge in inflation is driven by the accelerated price adjustment to the weakened ruble and has a limited time effect. Inflationary pressure will be subsequently restrained by lower economic activity," the regulator said.

Representatives of some companies operating in Russia expressed hope that the rate cut will have positive effect for their business. Thus, property developers polled by TASS news agency on Friday expect a recovery in pace of construction and in demand for mortgage loans. A representative of Russia’s property developer LSR Group said that this measure is likely to trigger demand and prevent the market from falling to its lowest level, adding that some banks might cut their interest rates to 14.5%.

President of Morton Group, one of the leading property firms in Russia thinks that the key rate cut to 15% is a good sign for all Russian business. "If the rate is further cut the Russian business will be ready to push the economy up. For this we have both resources and desire," he said, adding that this is a clear sign both to business and consumers that "we have a way out of the current situation."

Meanwhile, Russian Industry and Trade Minister Denis Manturov said on Friday that the rate cut to 15% is the first step to making borrowings accessible for the industry.

"The Central Bank’s decision to cut the key rate to 15% should obviously be welcomed as a first step in finding a way out of the problem of accessibility of loans for industrial enterprises," the minister said.

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