Central Bank of Russia chose cautious step of rate cut in March due to risks from external conditions, budget - summary
MOSCOW. April 1 (Interfax) - The discussion regarding the size of the key rate cut at the Central Bank of Russia board of directors meeting on March 20 was framed around an analysis of data showing a slowdown in economic activity on the one hand and a set of pro-inflationary risks on the other, according to the traditional summary of the meeting's results published by the Central Bank on Wednesday.
The CBR board of directors made a decision on March 20 to cut the key rate by 50 basis points (bps) to 15% per annum, which was expected by the market. A broad consensus emerged at the meeting, although there were also proposals for a 100 bps cut and for a pause, Central Bank Governor Elvira Nabiullina said on the day of the meeting.
In the summary, the Central Bank disclosed the arguments of the meeting's participants.
IN FAVOR OF CAUTION
"When discussing the size of the key rate cut, participants who advocated for a 100 basis point cut placed greater importance on the latest data on economic activity, indicating a more pronounced cooling of domestic demand. They also assessed the progress achieved in reducing underlying inflation more confidently, believing that its rate had already approached 4% on a seasonally adjusted annualized basis. At the same time, the majority of participants proposed cutting the key rate by 50 basis points. A more cautious step makes it possible to account for increased uncertainty and pro-inflationary risks, including those from external conditions, fiscal policy, and persistently elevated inflation expectations. It also makes it possible to avoid creating excessive expectations among financial market participants regarding the future trajectory of the key rate and excessive easing of monetary conditions," the summary said.
"Hawks," who suggested discussing a pause in monetary policy easing, noted that estimates of underlying inflation are significantly distorted by one-off factors: January figures are overstated due to the impact of VAT increases and other tariffs and fees on prices, while February figures, on the contrary, may be understated due to a temporary weakening of consumer spending at the beginning of the year. The growth rate of prices for unregulated (market) services remains high. A more reliable estimate of sustainable price growth will be obtainable later, in April-May. For a further rate cut, it is necessary to confirm a slowdown in underlying inflation. Persistently elevated inflation expectations may hinder the sustainable return of inflation to the target. In H2 2025, indicators of sustainable price growth stabilized rather than declined, indicating the need for an additional disinflationary impulse from monetary conditions. At the same time, there is no significant cooling of consumer spending in Q1 - the level of consumption saw a one-off fall in January due to temporary factors (redistribution of demand between quarters and adaptation to tax changes), and positive growth rates in consumer spending can be expected to return in the future. In addition, pro-inflationary risks from fiscal policy remain. A reduction in the baseline oil price under the fiscal rule implies a corresponding adjustment in expenditures to maintain a zero structural primary deficit; however, "the implementation of such a scenario may be difficult."
THE SIGNAL FOR THE FUTURE
The signal regarding the future direction of monetary policy after a period of "neutrality" in February became directional and dovish. The CBR said after its February meeting that it would assess the appropriateness of further key rate cuts at upcoming meetings depending on the sustainability of the disinflation process and the dynamics of inflation expectations. In the March statement, the signal did not change in substance, while the regulator added uncertainty factors to it, saying that the CBR will assess the appropriateness of further key rate cuts at upcoming meetings depending on the sustainability of the disinflation process and the dynamics of inflation expectations, as well as an assessment of risks from external and internal conditions.
According to the summary, during the discussion of the signal, participants considered either keeping the moderately dovish wording used in February or abandoning the signal regarding the direction of future steps.
"Some participants noted that amid increased uncertainty related to external conditions and fiscal policy parameters, confidence in the existence of room for a key rate cut at upcoming meetings has decreased. Therefore, there is no need to give a signal about the direction of future steps. At the same time, the majority of participants noted that a moderately dovish signal is consistent with the logic of the baseline scenario, which assumes a gradual reduction in the key rate in 2026-2027. At the current stage, there are no grounds to abandon it," the summary said.
At the same time, the meeting's participants emphasized that the indication in the signal of assessing the appropriateness of further rate cuts "is not a commitment to take specific steps and is not tied to a particular meeting, but rather implies that decisions depend on incoming data." Following the discussion, participants agreed to keep the moderately dovish signal, "refining its wording and pointing out the need to consider risks from external and internal conditions when making further decisions," the summary said.
