24.03.2017 08:39   International

Experts forecast Bank of Russia will keep key rate at 10%

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The Russian Central Bank is maintaining the key rate at 10% since September 2016

The Bank of Russia will most likely make a decision to keep the key rate at the level of 10% at its Board meeting on March 24, the majority of experts polled by TASS said on Thursday. The regulator will keep the rate because inflation expectations remain high but it may be lowered later on, the market participants say. The Central Bank is maintaining the key rate at 10% since September 2016. The potential for rate reduction declined in the first half of this year, the Bank of Russia said after the February meeting of the Board.

The comment made by the regulator in February limits the Central Bank in its action at the upcoming Board meeting, chief economist of Alfa Bank Natalia Orlova said. "We believe the rate reduction at the meeting this Friday is highly improbable because of this reason but we definitely expect a promise to lower the rate at the next CB Board of Directors’ meeting," she said. The Central Bank will not back down from February rhetoric, Raiffeisenbank analyst Denis Poryvai said. "Furthermore, our inflation expectations are still high. We see their growth in January… If we aggregate these two factors, we will find that no significant improvements occur," he said. The rate reduction can be expected after the April meeting, he added.

At the same time, certain analysts believe the Central Bank will soften its monetary policy. "We expect the reduction by 25 basis points to 9.75. Actual inflation data that is about 4.4% year-on-year now enable us to argue so. We are obviously moving quicker to the target versus assessments at the year-beginning. I think there is a room for reduction," chief economist of VTB Capital Alexander Isakov told TASS. Sberbank CIB experts share this opinion, referring also to the domestic currency strengthening. "Considering the stable trend of inflation slowdown and sudden ruble strengthening, we revised our forecasts anticipating that the CB rate reduction is not possible earlier than the second quarter. We expect now the regulator will change the key rate on Friday, March 24, reducing it by 25 basis points to 9.75%," Sberbank CIB experts said.

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