Bank of Russia explains why it is in no hurry to cut key rate as inflation slows down

MOSCOW, March 25. /TASS/. Speaking at the State Duma, the lower house of the parliament, Deputy Chairman of the Bank of Russia Alexey Zabotkin explained why the regulator is in no hurry to reduce the key rate amid signs of slowing inflation.

"If inflation is already slowing down, why are we in no hurry to reduce the rate& It is important to note several reasons for caution. The last year’s situation illustrates it quite well - back then the rate was 16% at the beginning of the year, and inflation began to slow down a little, but then accelerated. It is very important for us to avoid a repetition of this situation and there are three main reasons for maximum caution," Zabotkin said.

According to him, firstly, over four years of high inflation, the inflation expectations of the population and business have noticeably increased.

"Citizens and businesses fear that prices will continue to grow rapidly. These expectations are quite tangible, and decisions about purchases, savings, loans, and investments depend on them. They set the inertia of price growth, and before easing the monetary policy, we need to achieve a reduction in prices, but this takes time," he noted.

Secondly, according to the deputy chairman of the Bank of Russia, the decrease in inflation expectations and inflation in February-March is partly explained by the significant strengthening of the ruble.

"To a significant extent, this strengthening reflects the effects of our policy. But in the last couple of months, expectations of geopolitical detente have also had a very significant impact on the strengthening of the exchange rate. Today, these are only expectations," he explained.

And the third factor, as Zabotkin pointed out, is the need to ensure the sustainability of the slowdown in lending, which can only be done based on data for April and May.

On March 21, the board of directors of the Bank of Russia decided to keep the key rate at 21% per annum, noting that it might consider raising the rate unless disinflation dynamics ensure achieving the 4% inflation target.