The Central Bank lowered its key interest rate to 8.5%: what will happen to the ruble

The Board of Directors of the Bank of Russia took a decision to lower its key rate by 0.5 percentage points to 8.5%. The regulator’s decision has not become a sensation for the market participants: almost all of them expected such a move, given the low inflation and positive macroeconomic statistics of the last weeks. What does the new, reduced, rate of the Central Bank financial markets and ordinary citizens, “MK” learned from the experts.

photo: Gennady Cherkasov

Anna Kokoreva, Director of the analytical Department of Alpari:

We expect a similar decline in interest rates in connection with the reduction of inflation to 3.3% and stable exchange rate of the ruble against foreign currencies. The regulator’s decision will be positive for households and businesses, as interest rates on loans will continue to decline. Cheaper loans will allow to actively develop industry and increase the demand for consumer loans and mortgage loans among citizens. However, the rate reduction will also result in a reduction of interest rates on deposits. The ruble is fairly stable, so the Central Bank decision should not lead to serious weakening of the national currency and rising prices. Inflation fluctuations are possible, but in September, take effect of seasonal factors, such as the harvest. Traditionally, this period of time certain products are falling in price, allowing inflation to stay low. By early October, the annual inflation rate will be in the range of 3.3 to 3.4 percent. The next two weeks, the dollar will remain in the range of 56 to 58 rubles, and the Euro barely reaches 70 rubles.

Irina Rogova analyst GC Forex Club:

Rate cuts by the Bank of Russia was absolutely justified. In August, inflation in annual terms fell to 3.3%, which is significantly below the target level set by the regulator at the end of the year (4%). However, in these circumstances, the regulator did not go for more drastic rate cuts — after all, if more decisively, inflation, which is partially restrained and the stability of the ruble could accelerate. And the Central Bank aims to hold inflation expectations at a low level for a long time. Overall, such a move could be positive for the real economy, as credit will become a little cheaper. To win from such a move controller can and consumers who are planning a major purchase on credit. For example, mortgage rates had already been lowered. And the reduction of the key rate may encourage banks to further reduce them. But on the other hand, a rate cut may still give let small, but the impetus for the weakening of the ruble and, consequently, accelerate inflation. And this, in turn, is able to affect the real incomes of the population. And so they continue to fall for the third consecutive year.

Sergei Kozlovsky, head of the analytical Department of Grand Capital:

The Bank of Russia reduces the key rate, which is, in fact, said earlier the head of the regulator Elvira Nabiullina. Open remained only the question about the level of a rate cut — now it is solved: 0.5 percentage points. The current level of inflation has allowed the regulator to make such a radical (for his standards) reduce to 8.5%. Apparently taken into account that in August, we all witnessed deflation, which was not for many years. The reduction of the key rate will lead primarily to the continued reduction of interest rates on deposits, which in turn will force people to look for alternatives to Bank deposits, and should be of interest to the financial markets as a more profitable way of investing. The participation of households in financial market is a positive thing for the economy. No less a positive consequence of today’s decision on the key rate will be the expected reduction in lending rates for business and for people.

The rate reduction is ripe, it is due to the improving state of the domestic economy, says Georgy Vashchenko, head of IR “freedom Finance”. He is confident that the reduction of the key rate in these conditions stimulates production and consumption, support the economic growth. Indeed, a significant decrease in rates has been waiting for Russian Industrialists who complain about “expensive” borrowed money, hindering the development of business in the country. Now to the real sector, the idea is that it will be easier to grow and develop.

Improve opportunities for “life on loan” and for ordinary citizens: interest on Bank loans, including the mortgage, should decrease following the key rate. However, the rate reduction will also result in a decrease in interest on deposits. And with a potential acceleration of economic growth in the country is not so clear. “Now the economic growth is fading rapidly: in July and August, GDP grew about 2% year-on-year vs. 3.5% in may and 2.9% in June. Thus, tight monetary policy could stifle recovery of economic growth due to the downturn in consumer demand”, — says Timur Nigmatullin analyst “Discovery Broker”.

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