The Bank of Russia’s Board of Directors decided to lower the key rate from 9.75% to 9.25%.

That means that the monetary authorities moved to a policy of consistent reduction of rates, as at the last meeting of the Board of Directors held on 24 March, 2017, the rate was also reduced by 0.25 percentage points, while before that, the regulator had reduced the rate as early as in September 2016.

The reason for easing the monetary policy is the continuing slowdown in the consumer price growth. The current inflation in annual terms (over the previous 12 months) is about 4.3%, which means that it is close to the target level of 4%. Hence, the regulator’s primary focus today is on fixing the inflation at the current level and forming expectations of low inflation among economic agents. If the inflation risks (associated, for example, with too rapid recovery of aggregate demand or reduction in the oil price) prove to be too high, the regulator will slow down the reduction of the key rate to prevent a reversal of the consumer price dynamics.

It should be noted that consistent easing of monetary policy creates banks’ and enterprises’ corresponding expectations regarding future changes in the key rate, and therefore, in the near future, one can expect both a decrease in the cost of lending for end borrowers and lowering of deposit rates.

Evgeny Goryunov – researcher at the International Department of Fiscal Sustainability