The decision to reduce the key rate by one percentage point adopted by the decision of the Board of Directors of the Bank of Russia she is now 4.5% per annum. Such cheap money in the modern history of Russia was never. The decision to completely transform the monetary policy soft made of the Central Bank, apparently, after it became apparent the parameters of the budget policy for the years 2020-2021 — pronounced proinflationary she will not be disinflationary factors, primarily weak demand, remains the only factor that now guided the Bank of Russia. Central Bank allows further reduction of the key rate in July. But for that, they will need fresh negative news and data.After the may statement of the head of the Central Bank Elvira Nabiullina that, among other things, the Board of Directors of the Bank of Russia will be at the meeting on 19 June to consider along with other solutions, the option of reducing the key rate in four standard step, i.e. by 1 percentage point, from 5.5% to 4.5% per annum, in advance, the analysts included this rate in their model the regulator is very strongly and very confidently signaled that it might happen exactly like that. No new information, which would have forced the Central Bank to reconsider, to June 19, has not appeared, except that estimates of industrial production, which was in the first quarter of 2020, a bit better than the first evaluation (which is not surprising: the brunt of “coronavirus” the situation is caused by small and medium businesses and informal sector, information about which Rosstat has always come very late). But neither the key rate of the Central Bank, nor its predecessor, the refinancing rate, never in the history of the Bank of Russia at such a low level is not established — the level of interest rates at 5.5% per annum was maintained six months from September 2013 to March 2014. So that the Bank will take this decision remained in doubt until the last moment — in such circumstances, the financial market of the Russian Federation has never worked.The CB insists that his decision is caused by necessity to perform the single task of maintaining the medium-term inflation rate of 4% per annum: from the words of Elvira Nabiullina indicated that, according to calculations of analysts of the Central Bank, without that decision, the growth index potreban in the coming year would remain clearly below that figure. According to the head of the Central Bank, the main existing change for a month and a half since the last revision of the forecast of the Bank of Russia — the regulator was convinced that the downturn of demand in the economy in the coming quarters will be more, and he will last longer than previously thought. Epidemiological limitations of economic activity are removed later than expected and, according to Elvira Nabiullina, the decline in GDP in the second quarter of 2020 may be greater than 8% but less than 10%. The second FA��tor — extension of the limits of OPEC+ on oil exports.Note, however, that the forecast of the Central Bank is unlikely to be degraded significantly: a month and a half ago, the regulator had, apparently, more alarmist, though less certain, estimates for the impact of events on demand. Note, the “second wave” of the epidemic in the Russian Federation the Bank of Russia in calculations are not pawns, it has been said by far, expects a relatively rapid recovery of the economy in the third and fourth quarters 2020 and output to pre-crisis levels in the first half of 2022.Based on the answer to the question “Kommersant” about the prospects of food inflation in 2020, the Bank of Russia does not expect this year and much pressure onto agrocana — TSB specifically discussed this issue, there is no reason to expect a harvest 2020 more or less average, spring events had apparently no significant influence on the agricultural sector. Thus, the strong reduction in food inflation forecasts of the Central Bank is not laid. As, apparently, further devaluation of the ruble (the Bank of Russia in 2014 has not commented on the exchange rate movement) — on the contrary, judging by the recovery in oil prices, the decision to dramatically reduce the key rate, the regulator has taken, including referring further (albeit moderate) growth rate of the ruble to the dollar. While the Central Bank did not change the range of estimates of inflation by the end of 2020 — to 3.8–4.8 per cent.The Bank of Russia in the current situation it is absolutely confident it is considering its monetary policy as soft, the more radical revision of the range of a neutral key rate (currently 5-6% per annum) Central Bank does not intend to take. At the same time Elvira Nabiullina is confident that in the years 2020-2022 in the economy will not be negative interest rates (interest rates below inflation). Central Bank sees risks and losses of the banking sector by the end of 2020 — it is expected a small profit.The only real expression proinflationary factor in 2020-2021 years could be fiscal policy — more precisely, the implementation by the government under the economic recovery plan in 2020-2022 years (yesterday the new version of the plan was submitted to the White house to the Kremlin, according to “Kommersant”, not fundamentally changed in comparison with the may release) Federal spending at a level capable of provoking inflation above 4% per annum. What is known at this point concerning the plan does not assume that its costs will be higher is 2.4 to 2.7% of GDP a year in 2020-2021 years (that is a total of 5 trillion rubles or a bit more) and there will be much “shifted” for a two-year horizon in the direction of the current year. Change the key rate should reduce the yield retained by the Ministry of Finance on the OFZ market for the new debt, however, according to Elvira Nabiullina, the Central Bank does not see risks of default by the Ministry of Finance at this level the key a hundred��Ki new borrowing program.The decision of the Board of Directors of the Central Bank adopted simultaneously with the completion of the development plan of the government: it is to some extent the answer to the question why the Bank of Russia lowered its key rate to 4.5–5% per annum in April — then the inflationary Outlook related budget expenditure was less clear, as the size of the budget expenditures that would be required to stimulate more rapid post-crisis growth.The Central Bank decision record to reduce the cost of money in the Russian economy to some extent can be regarded as increasing the “proportion” attributable to the Bank of Russia in the overall actions of the authorities “postcolonialism” GDP growth — with the caveat that the Central Bank may participate in these actions only if it is not contrary to its objectives on inflation, and there is no reason to believe that on June 19 the controller, those changes were coming. First, the economic consequences of establishing a new level of the key rate will be obvious by the fall of 2020. Most of all it should be reflected in the mortgage market and because of this construction with related industries. The decision effect of reducing profits of the banking sector should speed up the withdrawal from the market of small banks and consolidate the banking business. Probable growth of interest in investing in the stock market and riskier assets when you expect a critical decrease in the yield of deposits and debt.In General, when a sober assessment of what is happening much enthusiasm to cause economists should not. Simplistically, the Bank of Russia does not make a “gift to the real sector” in the form of cheap money in the months ahead, and reacts rate of 4.5% per annum on the not visible now a large part of markets, problems that still await them ahead. The current level of the key rate — not the final: the Central Bank may reduce it (though with a dominant probability by 0.25–0.5 percentage points, no more) even the next meeting, on 24 July, the trigger for may be negative news from world markets, the signals are strong imbalances in the oil market and the negative “coronavirus” news. However, even the rate of 4% per annum is the lower limit for the 2020-2021 years: stronger than expected by the Central Bank, disinflation allows the controller (not abandoning the target of 4%, but on the contrary, one wants to achieve) to set the rate at 3%, and 2% per annum with a strong decrease of potreban. Demonstrated financial markets stability in the face of the custom set of shocks makes such previously completely unimaginable actions of the Central Bank, however, and more probable than before.Dmitry Butrin
