Ahead forecasts: in 2019, the Finance Ministry expects inflation at the level of 3-3,5% Short link
By the end of 2019, the Ministry of Finance forecasts inflation in Russia at the level of 3-3,5% instead of the target of 4%, but this is not the limit reduction. Early next year, the Ministry did not rule out that the growth rate of consumer prices will amount to 2.5–3%. According to analysts, this situation will be a signal for the Central Bank to further reduce key interest rate, which may spur economic growth through affordable loans to businesses and households, as well as to revive consumer demand.
- RIA Novosti
- © Ramil Sitdikov
The reduction of inflation in Russia ahead of official forecasts and economists ‘ expectations. As stated on Wednesday, 13 November, Deputy Finance Minister Vladimir Kolychev, the growth rate of consumer prices by the end of 2019 can reach 3-3,5%. Moreover, according to the Deputy Minister, in March — April 2020 inflation will be in the range of 2.5–3%.
In addition, Vladimir Kolychev said that the Russian fiscal policy is stable and does not bear significant inflation risk.
«About how many carries inflation risk fiscal policy. I think a little bit. If you see the horizon, not months, quarters, and a few years, then, in principle, we have a fairly stable budget policy», — TASS quoted the Kolycheva.
Kolychev also added that domestic investments from the national welfare Fund (NWF) can be about 1 trillion rubles within a few years, but they will not have a significant effect on inflation.
«Inflation is falling due to muted consumer demand and a relatively stable exchange rate. In General, we have a curious paradox: the decline of the standard of living keeps inflation at a low level,» — said in an interview with RT, the Director of the office of sales «BCS» Vyacheslav Abramov.
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In an interview with RT analyst CC «Finam» Alexey Korenev added that this year, the traditional seasonal decline in inflation in late summer — early autumn, caused by a fall in vegetable prices was larger than expected, due to a good harvest. However, the expert did not rule out a modest acceleration of inflation to the end of the year.
«As a rule, at the end of the year inflation stops falling and begins to grow up a bit, this is due to investment in major projects. Inflation may reach 3.5% or even 3.3 percent, but can be kept on it — the big question. I do not exclude that in 2020 the inflation will range from 3.5 to 4%, but not less than 3%,» — said Koren.
However, RT interviewed analysts agree that the reduction of the forecast values of inflation can be a signal for the Central Bank to continue easing its monetary policy through the reduction of the key rate.
«In part, when the Ministry of economic development or the Ministry of Finance talking about the low inflation forecasts, it is an indirect message for the Central Bank to reduce the key rate. Economic growth is now a priority of the government. In order to speed it up, should be soft monetary policy, i.e. low interest rates and more affordable loans. The key rate of the Central Bank, I think, may be reduced to 5%. The experience of different countries shows that the key rate is more-or-less works well when it is at 1-1,5 percentage points above the expected level of inflation», — told RT the head of the laboratory of the Institute of applied economic research Ranhigs, Alexander Abramov.
Alexey Korenev also believes that the situation with inflation has pushed the Central Bank to lower rates.
«It’s good for the economy, because it reduces the cost of borrowing for businesses and individuals, accelerates the activity of entrepreneurs and accelerates consumer demand. If by the end of the year inflation will be consistently below 4%, the key rate of the Central Bank may be reduced by 50 basis points. As for next year, it all depends on the rate of inflation. Perhaps the Central Bank will not rush with a sharp decrease in the interest rate. Most likely, next year we can expect two or three cycles of a rate cut of about 25 basis points. The rate may fall to 6%, it would not be surprising, but below 6% is already questionable. For this level of inflation should be below 3%,» says Koren.
Now the key rate of the Central Bank is at 6.5%. Overall, in 2019 the Russian regulator have four times the reduced rate, the latter — at the meeting on 25 October.
The Central Bank emphasize that the inflation rate now is almost the main reference point for changes in rates. According to the official statement of the Bank of Russia, consumer prices growth in Russia is slowing faster than expected.
As a result, the regulator has lowered the forecast of inflation in 2019 with 4-4,5% to 3.2–3.7 per cent. As expected in the Central Bank, in 2020 the figure will be around 3.5–4%, and then to remain near the target level of 4%.
«The slowdown is happening faster than predicted. Inflation expectations continue to decline. The rate of growth of the Russian economy remains limited. Are the risks of a significant slowdown in the global economy», — stated in the press release of the Central Bank, published on the official website.
Vyacheslav Abramov stressed that the current level of inflation allows the Central Bank does not stop the cycle of declining rates, however, drew attention to the global market.
«We need to monitor the situation on the foreign market, and under favorable conditions, the key rate of the Central Bank in the first quarter of 2020 may be at 6%. However, I don’t think that long inflation will remain at current levels. The uncertainty on the global markets may lead to the withdrawal of investors from risk and to weaken the Russian currency, which will affect the acceleration of inflation», — concluded the expert.