Translated material
Vasily Robak: FNB smells of oil
Vasily Robak
The Board of Directors of the Bank of Russia reduced the key rate, to 7.5% per annum. The head of the regulator Elvira Nabiullina allows two more reduction before the end of the year. According to analysts, this can happen at supporting meetings in September and December.
“We really gave a signal that a transition to a neutral rate is possible until mid -2020. This means and, possibly, one, and possibly two decreasing bets this year, if the situation develops in accordance with our basic scenario, if there are no negative surprises, ”Nabiullina said .
The next meeting at which they will make a decision on this subject is scheduled for the end of July. “The Bank of Russia will make decisions on the key rate taking into account the actual and expected dynamics of inflation regarding the goal, the development of the economy on the forecast horizon, as well as evaluating the risks of domestic and external conditions and the reaction of financial markets to them,” the regulator said in the official statement of the regulator.
“Given that the assessment of the Central Bank of the Neutral interest rate is somewhere between 6% and 7%, this will correspond to at least two more reducations of 25 basic points,” writes Capital Economics experts. Given the fact that the cycle of mitigation of the policy will be gradual, this may mean a decrease in the rate in the next three support meetings - in September and December of this year, as well as in March 2020, they proposed their work scenario, waiting for a rate of 6.75% by the end of the next year.
The current decrease in the rate occurred for the first time since March last year and is fully consistent with the expectations of economists and markets. Most of the experts surveyed spoke about him. In their opinion, the regulator increased the key rate in anticipation that the increase in prices this spring will accelerate to 5.5–6% in annual terms, but it turned out that the tax risk was overestimated, and annual inflation reached the peak of 5.3% in March, after which it declined.
Nabiullina also predicted deflation in the summer and autumn of this year, but explained it exclusively seasonal factors against the backdrop of the expected good harvest. “If there are some powerful disposable disinflation factors - of course, it is possible that inflation will be lower. But so far we do not see the high probability of this. We will look at the dynamics of incoming data and evaluate the dynamics of inflation at the next meeting, ” said the head of the Central Bank. According to her estimates, now "the level of inflation of the monthly, seasonally cleaned, is about 4%somewhere." Compared to March, short -term dialogue risks decreased. In these conditions, taking into account the monetary policy, the Bank of Russia reduced the forecast of annual inflation according to the results of 2019 from 4.7–5.2 to 4.2–4.7%.
Reducing a bet is a risk factor for the ruble. The lower it is, the less attractive Russian assets for foreign investors are. There are more serious risks for the Russian currency - sanctions and trade wars. “If in the geopolitical space everything will follow the path of confrontation, then there is every chance to see the Russian ruble course at 80 per dollar. This can even happen at an oil cost of $ 80 per barrel, ” says Roman Blinov, head of the analytical department of the International Financial Center.
In addition, Nabiullina fears that the discussed options for using the National Welfare Fund over the threshold of 7% of the gross domestic product can ultimately weaken the budget rule and increase the vulnerability of the economy. If the oil and gas revenues of the budget after reaching the liquid part of the Federal Tax Service 7% will be spent in full, “this means that we restore the dependence of internal indicators on changes in oil prices”, warned Nabiullin on Friday. Even if you spend only part of these additional copyrights, in fact, this will be equivalent to increasing the cutting price.
“This can lead to a one -time, simultaneous increase in the real ruble exchange rate, some decrease in the competitiveness of our companies. But in principle, the effect stabilizing the rule will remain, ”the Chairman of the Central Bank explained . If the authorities nevertheless decide to invest in the FNB within the country, these investments should lead to an increase in potential pace of economic growth, Nabiullina emphasized: “Then there will be fewer the indestation effect, and we will not need to react with monetary policy.”