Economists praised the reduction in Central Bank key rate

The Bank of Russia on Friday to support the economy and stimulate demand, lowered the key rate by 1 percentage point and led her to a new historic low of 4.5%. After such a "generous" step, the regulator does not rule out the possibility that at the next meeting can take a break - everything will depend on the situation. Yet one thing is clear: such moves from the Central Bank while more should be expected, the regulator still prefers a neat solution.

"We will continue to assess the feasibility of additional mitigation measures our monetary policy to lower the rate. However, you know in General our approach: to move gradually, carefully, keeping track of all effects by analyzing all incoming information, so of course, we do not believe today's adopted step as a standard step," - said the head of the Central Bank Elvira Nabiullina.

RIA Novosti interviewed experts are not surprised by the decision of the Central Bank: the regulator in the context of economic slowdown and subdued inflation is necessary to create conditions for the future recovery of consumer demand.

"The Bank of Russia is expected to cut its key rate by one percentage point. In conditions of a sharp reduction in the economy and subdued inflation, the Central Bank strengthens support aggregate demand by monetary means" - said the chief economist of Sovcombank Kirill Sokolov.

Pandemic coronavirus in spring was the main threat to the Russian economy: closed borders, the fall in oil prices due to low demand and imposed due to limitations of the virus within the country will lead this year to a decrease of Russia's GDP, the first in 2015 and the recovery will not be quick.

"The full return of GDP levels in 2019 are likely to occur only in the first half of 2022", - predicts the head of the Central Bank. While the regulator has underestimated the drop in the second quarter of this year: initially, the fall in GDP is expected to reach 8%, however, due to the longer duration of quarantine measures, it may be a little more, but not more than 10%, noted Nabiullina on Friday.

The regulator in April gave a forecast of inflation by the end of the year in the 3.8-4.8%, but on Friday it said, noting that the focus is on the lower bound of the range. And in 2021, there is a risk of significant deviation of inflation down from 4%. The probability of anchoring of inflation below the Central Bank's forecast this year is very high, evaluates the chief analyst at Promsvyazbank Denis Popov.

Chief economist of Alfa Bank Natalia Orlova specifies that in the coming months, the disinflationary pressures will dominate.

"First, the number of officially registered unemployed continues to grow to 0.7 million people per month, and rising unemployment ahead of our expectations, putting pressure on demand. Second, and most important, there are growing concerns about the second wave of the pandemic and, therefore, on the introduction of quarantine measures in the fall, which hit the mood of consumers now, regardless of the dynamics of unemployment and income," explains the analyst.

While Nabiullina, speaking about the possibility of a second wave of coronavirus in Russia, noted that the baseline scenario of the Central Bank does not include such risks, but even if they are implemented, the economic consequences would be less.

The main intrigue is gradually becoming the interface on which the controller can stay in the cycle of monetary easing. Despite the fact that the head of the Central Bank said that the transition to negative real interest rates in the next 12 months not planned, analysts expect weak economic activity and low inflation as close as possible to push the Central Bank to the "red line".

"The statement that the leadership of the Central Bank will again consider the issue of further reduction of the key rate, combined with the fact that it allows the slowdown of inflation to levels significantly below the targeted 4%, the real question about the willingness of the regulator to ensure that in the coming months to lower rate to less than 4%," - said the strategist of Sberbank in currency markets and interest rates Nikolay Minko.

The economist "BCS Premier" Anton Pokatovich expects continued moderate growth in consumer prices throughout the year, thus a major factor in the disinflationary pressure will continue to perform compression of consumer demand.

"This vector of inflation we do not exclude that after today's active rate cut to 4.5% this Friday, the Central Bank will retained the ability to consider additional steps to reduce rates this year. We believe that the "bottom" of the current cycle of lowering rates in the current environment is close to the levels of 3.5-4%," he says.

Managing Director of macroeconomic analysis and forecasting Agency "Expert RA" Anton Tabah also sees the rate at the year-end at 3.5 to 3.75%. A little more modest expectations, the Deputy Director of sovereign ratings and macroeconomic analysis ACRES of Dmitry Kulikov, who predicts the key rate for the year at the level of 4-4,5%.

A question mark remains and the period within which the regulator will maintain loose monetary policy. Given the expectations of the Central Bank to economic recovery only in 2022 and a significant risk of deviations in inflation from the target level of 4% in 2021 Popov considers that the high probability of maintaining soft interest rate policy until the end of 2021.