Yesterday, the Central Bank held a meeting, at which it was decided to keep the key rate at the same level – 7.75%. It should be reminded that previously the CBR increased the key rate in December.
As for future actions, the Bank of Russia made it clear that it would act according to the situation. The regulator intends to build on the current indicators of inflation, the economic environment, external conditions and the state of markets. The next board meeting will be held in March.
In April it will be possible to fully evaluate the effect of the VAT increase. Now the annual inflation is projected at around 5.5%. In 2020, it should decrease to 4%.
The inflation rate in January coincided with the expectations of the regulator. Consumer prices were rising at the rate of 5%. In December, for example, this indicator was equal to 4.3%.
Monetary terms have remained the same. In general, they have not changed much in the market except for a small dynamics in individual segments. The yield on the government bonds has slightly fallen, while interest from the deposits, on the contrary, has increased a bit.
According to Rosstat, the GDP growth is 2.3%, which is less than the Central Bank’s forecast (1.5–2%). At the end of 2018, a decline in business activity was observed. The growth rates of production, construction, wages and trade have also fallen.
For 2019, the forecast for the GDP growth is 1.2-1.7%. At the beginning of the year, business activity will be slightly held back due to the increased VAT. In the next few years, thanks to the planned structural measures, the economic growth will be observed.
Due to the increase in VAT and rising food prices in the short term, attention should be paid to inflationary risks. Also, do not forget that the external conditions and their impact on the country’s economy remain uncertain. There is a big risk of falling demand for oil, which can easily smooth out the January price increase.
The geopolitical factors that can cause a change in commodity and financial markets, affecting exchange rates and inflation, will play an important role.
As for the risk assessment in relation to changes in wages, consumer behavior and budget expenditures, the regulator still considers them moderate.
The material was prepared with the participation of Katya Gordon,
a leading analyst of the brokerage company CT Trade