Bank of Russia has cut the key rate to 20%. According to Evgeny Goryunov, Head of the Monetary Policy Department at the Gaidar Institute, the Central Bank’s decision marks the beginning of the monetary policy easing cycle. In a commentary for Rossiyskaya Gazeta, he noted that the transition to a neutral rate level will take one and a half to two years, and during this time monetary conditions will remain tight.
“Bank of Russia decided to cut the rate by 1 p.p. to 20%. The reason for this, according to the regulator’s statements, was the observed deceleration of inflation. Indeed, inflation is falling rapidly: from 10.3% (seasonally adjusted) in January, inflation fell to 6.2% in April for the general price level and from 9.2% to 4.4% over the same period for core inflation. The observed strengthening of the ruble exchange rate is also in favor of this decision. At the same time, output growth rates have slowed down and, judging by some indirect indicators of current activity, economic growth is approaching zero. Given such context, it is advisable to move to the cycle of monetary policy easing. It should be noted that most analysts expected a more restrained rate cut, and many generally assumed that Bank of Russia would postpone easing. The conclusions from the decision are as follows.
Firstly, the rate cut cycle has started and, in the absence of significant shocks, the transition to neutral rates will take one and a half to two years. During this time, monetary conditions will remain tight.
Secondly, the 100bp cut was stronger than most experts expected (we expected a