Evgeny Goryunov, Head of Monetary Policy Department at the Gaidar Institute, commented on the outcome of the Bank of Russia’s Board of Directors meeting held on March 20 The regulator decided to cut the key rate by 50 basis points to 15%.
“As expected, the key rate was decreased by 50 basis points to 15%. The policy easing is linked to the gradual slowdown in actual inflation, and although it has been quite high since the start of the year (15% in January and 5.6% in February on an annualized and seasonally adjusted basis), this acceleration is due to the effect of the VAT increase and is temporary. At the same time, the Bank of Russia notes that the appropriateness of a rate cut will be assessed by the Board of Directors at its upcoming meetings. This reservation can be interpreted to mean that the Central Bank fully allows for pauses in the rate-cutting cycle. “The main factor is external uncertainty, but, in addition, the future trajectory of the rate depends on the dynamics of budget expenditures. If the Finance Ministry demonstrates its commitment to the plan to cut spending, the rate will fall faster,” said Evgeny Goryunov.