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Russia’s Central Bank cuts key rate to 9%

June 16, 13:43 updated at: June 16, 14:40 UTC+3

The Bank of Russia sees room for cutting the key rate in the second half of 2017

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© Vyacheslav Prokofiev/TASS

MOSCOW, June 16 /TASS/ The Bank of Russia Board of Directors decided to cut the key rate to 9.00% per annum, the regulator said in a press release on Friday.

"The Board notes that inflation is close to the target, inflation expectations keep declining, and economic activity is recovering. Inflation risks were down in the short term, while they remain in place in the medium term. The Bank of Russia will continue to conduct moderately tight monetary policy to maintain inflation close to the 4% target," the regulator said.

"The Bank of Russia sees room for cutting the key rate in the second half of 2017," it said.

"While making its decision hereinafter, the Bank of Russia will assess inflation risks, the inflation dynamics and economic developments against the forecast," the report said.

The Russian ruble slightly grew against the dollar and the euro after the decision of the Central Bank to lower the key rate by 0.25 percentage points to 9%. Thus, the dollar before the publication of the Central Bank’s decision was falling by 20 kopecks to 57.69 rubles. After the decision the dollar fell to 57.56 rubles. The euro before the publication of the decision was declining by 6 kopecks to 64.46 rubles, after - reached 64.37 rubles.

2017 GDP outlook

Russia’s Central Bank has upgraded its GDP growth outlook for this year to 1.3-1.8% from 1-1.5%, the regulator said.

"Economic activity continues to recover. Household consumption is on the rise alongside with the growth in investment and industrial output. Currently, a moderate growth in consumer expenditures does not exert any inflationary pressure under increased supply of goods and services. Considering the current recovery trends, the Bank of Russia has increased its GDP growth rate forecast to 1.3-1.8% in 2017," the report said.

Economic growth is getting closer to its potential level, the regulator said. "The situation in the labor market with the shortage of personnel in certain segments being evident is a constraint. In the sequel a GDP growth rate higher than 1.5-2% annually will be reached if structural reforms take place," the Central Bank said.

Inflation risks

"Short-term inflation risks connected with oil price dynamics have declined following the prolongation of the agreement to reduce oil production by oil-exporting countries," the report said. "At the same time short-term risks arising from the implied harvest, its impact on consumer goods prices and inflation expectations are typical of this season."

The bank added that mid-term risks remain elevated. "A possible tax maneuver can lead to a temporary acceleration in inflation," the regulator said.

"Food inflation remains relatively low, although since the supply of last year harvest has become exhausted annual growth in prices for fruit and vegetables is currently rising. Annual inflation registered an expected short-term increase against this backdrop standing at an estimated 4.2% as of 13 June 2017," the regulator said.

Monetary conditions

"Consumption recovery is not outpacing growth in wages for the time being. Banks continue to adhere to a conservative policy by mitigating price and non-price lending conditions primarily for reliable borrowers. The slowing growth in household deposits was attributable in part to the deposit rate reduction. The Bank of Russia will set the monetary conditions to promote savings, which in turn will curb inflation risks," the regulator said.

Decline in DDoS attacks

 The Bank of Russia has registered the decline in DDoS attacks against the Russian banking sector, deputy department head of the regulator Artyom Sychev told TASS in an interview on Friday.

"Their number has dropped dramatically, reasoning from our observations. Attacks with the use of botnets comprising the so-called Internet of Things [proposed development of the Internet in which everyday objects have network connectivity - TASS] have not been recorded so far," the expert said. However it does not mean that such attacks will not be repeated, he added.

It is important to address an opportunity of repeated DDoS attacks from the Internet of Things not merely in the context of critical infrastructure protection, Sychev said. "The question arises of interacting with telecom providers not only at the governmental but also at the interstate level. Nobody will ever be able to counter a large-scale DDoS attack alone," the expert added.

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