the Bank of Russia is expected to cut its key rate by 25 basis points to 4.25% per annum. Earlier, at its June meeting, the regulator has gone to the sharpest in five years of monetary policy easing, hit rate by 100 basis points to 4.5% per annum and narrowing to a minimum the space for further manoeuvre. This time, the Central Bank did not force the issue, although coronaries continues to undermine the economy and devastate the wallets of citizens: in June, the industrial production index fell by 9.4% in annual terms after the minus 9.6% in may and real disposable income declined in the second quarter by 8%. “MK” has found out from experts, what caused the decision of the Central Bank, and how it will affect the rates on Bank deposits and loans.
Alexander kuptsikevich, FxPro financial analyst:
“So a moderate decrease in rates is due solely to the considerations of prudence: the Bank of Russia often makes a choice in favor of this scenario. There are several factors that force the Central Bank to extend the process of monetary easing for the longer term. Among them – the disturbing dynamics of the ruble, whose positions are weakening against the dollar and the Euro. In addition, securities with long maturities (OFZ) lose in price, and this is a clear sign of an outflow of investors. Their role and concerns about a new wave of sanctions. With regard to the decision of the Central Bank will affect the interest rates on Bank deposits, then let me remind you: the yield of ruble deposits already below the rate of inflation. And even if the banks won’t lower interest rates, more people will look for alternative ways of building up capital, be it investing in the stock market or real estate, or cash in the currency”.
Sergey Suverov, an investment strategist UK “Arikapital”:
“the Central Bank is aware: you should not hurry up and to expend all ammunition. Lowering the rate by 25 basis points, the regulator retains the ability to continue easing monetary policy in the future. Besides, it is necessary to first deal with the effect on the economy from the previously taken similar steps. The current Central Bank decision and formally dictated by the rate of inflation, and it is in Russia is low. Another reason is to mitigate the observed recession. As a rule, in case of reduction of the key rate of the Central Bank go downhill and interest rates on loans and deposits. But this dependence is nonlinear: the reduction of interest rates on loans prevents growth delay, and a further fall in rates on deposits could trigger an outflow of deposits from banks and transfer them in cash or in shares. This process is actually already happening.”
Alexander Razuvaev, head of IAC “Alpari”:
“the Head of the Central Bank Elvira Nabiullina on July 13 said that the regulator have opportunities for reducedia key rate. Oil and the ruble stable. The only thing that threatens the Russian currency is the new sanctions, which are difficult to predict. Inflation is no problem, due to weak domestic demand. The important thing for monetary authorities to mitigate the recession that the Central Bank is trying to do. It is obvious that interest rates on deposits and loans will continue to decline slowly, and the trend of closing Deposit accounts and flow of funds of investors on the stock market in 2020 will only increase. Earlier, the Bank of Russia stated that the target for the key rate is 6-7%, but now it is other times. Ruble pairs until the end of summer will remain roughly at current levels, the dollar will be traded at the level of 71 rubles, Euro — 82 rubles.”
