First. Inflation is now slowing down in line with the Bank of Russia’s baseline forecast. This marks the 11th consecutive month that Banco de la Republica has intervened in a fight against ballooning inflation, setting another seven-year high for the nation’s borrowing cost.
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The bank left its key rate at 10.5 percent, as the majority of economists had predicted in a Reuters poll, after cutting for the first time in nearly a year in June.
Second. The tight monetary conditions will be maintained, although somewhat eased following the contraction of the banking sector’s liquidity deficit and the June 2016 reduction in the Bank of Russian Federation key rate. Currently, the inflation level stands at 7.5%. The ruble’s depreciation makes harder the task of slowing price growth to 4 percent in 2017 after it quickened in June to nearly double the target, ticking up for the first time in 10 months as nominal wages rose faster than prices. The Bank of Russian Federation estimates the annual growth rate of consumer prices to decline, as of 25 July 2016, to 7.2%.
Decreasing the target rate poses the risk of high inflation, but also stimulates economic growth by making credit cheaper.
In line with analysts’ expectation, the State Bank of Pakistan (SBP) maintained the target rate on Saturday at 5.75% for the next two months.
Fourth. The risks of failure to deliver on the 4% inflation target in 2017 persist following primarily, along with the external risks, the inertia of inflation expectations and the uncertainty over specific fiscal consolidation measures, including wage and pension indexation.
The SBP expects increased economic activity may leave an impact on inflation. Positive quarterly GDP growth is possible in the second half of this year.
The one-week auction rate will remain at 10.5 percent, policy makers said in a statement on Friday, matching the forecasts of 29 of 39 economists in a Bloomberg survey. Economic dynamics are patchy across sectors and regions. Import substitution and non-oil exports are developing, there are new areas of growth in the industry, including the manufacturing sector.
The bank revised down its economic growth forecast for the year to 2.3 percent from 2.5 percent as low oil prices continue to drag national revenue.
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According to the statement, the bank will absorb liquidity as it moves into surplus in banking.
