Slowdown of inflation may continue in the first half of the year. It will return to the target level (4%) only in the next year. Thereafter, the rate will cease to decrease until the inflation target is revised or the premium for Russian risk is reduced. Previously, the equilibrium level of the rate was estimated by the management of the Bank of Russia in the range of 6-7%.
Volatility persistence in external markets may increase market rates
"The market allowed a more decisive rate cut on the background of annual inflation of 2.2 percentage points in January, but expectations have shifted under the influence of panic on stock exchanges – the VIX volatility index in the US market almost reached the level of the 2008 crisis in the last week," Analytical Center expert Daniil Nametkin told a Rossiyskaya Gazeta correspondent.
According to the analyst, the return of inflation to the target level depends on the possible increase in capital outflows (under the influence of market turbulence and the reduction in the spread between risk-free real returns in Russia and the USA), as well as the activation of consumer demand, the low level of which "dried up" the inflation.
Until the end of the year, the Bank of Russia may reduce the rate by another 100 basis points in increments of 25 points: once in the spring, and then, after having assessed the situation with the harvest in June-July, three more times in the second half of the year, Mr. Nametkin predicts. "If instability in external markets continues, the situation may change, up to some growth in market rates. This will force the Bank of Russia to extend the final cycle of mitigation of its policy," the expert believes.
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