the Bank of Russia reduced the key rate since last summer at six meetings in a row. Last time he dropped it in early February and signaled then that can continue the process and then (low inflation allowed it to do). However, since then the situation has changed dramatically – all the world markets entered a zone of turbulence due to the spread of the planet of the coronavirus and the collapse of the deal, OPEC+, triggering a sharp fall in oil prices.
the Price of oil fell below 30 dollars a barrel
the Russian market on this background, was no exception, despite the absence of panic. If at the time of the February meeting of the Central Bank, the dollar cost 64 rubles, now its rate is around 75 rubles. Now the Bank of Russia to stabilize the market and daily sales of foreign currency and helps Russian banks with cheap money.
Other global regulators have gone much further and has actually announced an unprecedented program of monetary stimulus of the global economy – and all because of the spread of coronavirus. Quarantines, widespread restrictions on entry and scrapping the supply chains powerfully hit the world economy and quickly bring it to the recession. Falling Asian, European and American stock indices is well illustrated.
against this background, on the eve of the Federal reserve system (FRS) the USA to urgently cut its benchmark interest rate. Now its range is at a minimum level of 0-0,25% per annum. The fed announced the quantitative easing program to $ 700 billion – the Federal reserve will buy bonds for that amount to increase the liquidity of the markets. This is a standard saturation method financial institutions liquidity.
the European Central Bank (ECB) announced that it will increase the program quantitative easing for another 120 billion euros until the end of the year. On the coordinated measures to saturation of the markets of dollar liquidity announced by the Bank of England, Bank of Canada, Bank of Japan and Swiss national Bank.
interest Rates on loans and deposits will increase, even if the Central Bank will not change rates on Friday
But at least on Monday, world markets reacted to the news about the “treatment” of coronavirus dollars decline. Probably, in General, uncontested steps leading Central banks still look panic. Optimism to investors have clearly adds no recent statistics of the second world economy – industrial production in China in January-February decreased by 13.5% compared to the year 2019, retail sales fell 20.5%, and investments – 24.5%. It is also a vivid illustration of the destructive effect of coronavirus on economic dynamics.
Peskov called the cause of fluctuations in the financial markets
In such circumstances, the Russian Central Bank will have to decide whether to make loans in the economy cheaper or with this is to wait. The only comment from the Bank of Russia, which can be interpreted as a signal by the movement of interest rates in this Friday, contained in a recently published review of inflation. It says that the weakening of the ruble due to coronavirus and lower oil prices – a significant, but short-term factor that accelerates inflation. That is, inflation with low level of recent months will return to the target of the Bank of Russia 4% faster than previously predicted. But the slowdown in the global economy and the impact of increased uncertainty and tighter monetary conditions on domestic demand dynamics may become important factors that weaken the oldLazio in the medium term, indicated the Central Bank.
According to the main analyst “BCS Premier” Anton Pokatovich, even with the recent actions of the fed and a further decline in markets, it is fairly clear signal that the Central Bank plans to leave March 20 the key rate unchanged.
the Cycle of decline in the key rate over confident economists of “Renaissance Capital” in Russia and the CIS Sofya and Andrey Donets Melaschenko. Arguments in favor of further rate cut for March 20 could be a low current inflation and the expected slowdown in economic activity, but they are outweighed by the weakening of the ruble and future price growth, they say. They forecast inflation in 2020 will exceed the target of the Bank of Russia and reach 5%.
Probably, considered and risk scenario. If the exchange rate of the Russian currency by Friday will weaken significantly above 75 rubles per dollar, the Central Bank may raise the key rate by 0.5-1 percentage point (i.e. to 6.5-7% per annum), admits chief analyst at Sovcombank Mikhail Vasiliev. This will constrain the possible weakening of the ruble. Securities upon such a step can strengthen monetary and verbal intervention on readiness to raise rates if necessary. These measures will allow you to win several weeks in anticipation of a stabilization in the markets and clarify the situation with coronavirus, says Vasiliev.
dollar exchange Rate exceeded 75 rubles
Typically, banks adjust their policy rates following the Central Bank decision on key rate (on deposits fast loans slower). Now given the unstable market, all a little different. Lending rates (including mortgages) began to increase without waiting for the decision of the regulator, note the Donets and Melaschenko. “Deposit rates of major banks remains without changesitude, they can grow in the case of a decision about tightening monetary policy. In the medium term, both credit and Deposit rates must increase” – analysts say.
If the Bank of Russia will raise its key interest rate, the average rate on deposits may return to 6-7% (now just above 5%) and average mortgage rates are fixed near the points 9-9,8% (in February it was 8,84% – a historic low), believes Pokatovich.
Further dynamics of Bank of Russia key rate will largely be determined by the dynamics of the ruble, highlights Vasiliev. The ruble exchange rate, in turn, will depend on the General condition of world markets (through demand for Russian stocks and bonds) and the dynamics of oil prices, he said. The acute phase on world markets may last for several months. Yet the risks of interest rate hikes exceed the probability of its further reduction, he said. According to the forecast Donets and Melaschenko, the rate increase could take place in April, and by the end of the year it will be 6.25%.