The decision was supported by the assessment of inflation risks and economic growth prospects. Narrowing the spread between the interest rates on certain Bank of Russia liquidity providing and absorbing operations is neutral from the viewpoint of the current monetary policy stance. It should contribute to restraining money market rates volatility and strengthening of the interest rate channel of the monetary policy transmission mechanism.
In November the pace of inflation was unchanged at 6.5% over a year ago. Core inflation remained at 5.8%. In the recent months stabilization was observed in a wide range of consumer goods and services prices, while the growth of nonfood goods prices decelerated. Still, the pace of inflation remains above the target range, which may affect economic agents’ expectations and thus poses inflation risks. On the other hand, the September 2012 increase in the Bank of Russia interest rates is to some extent curbing inflation expectations. Moreover, any significant demand-pull price pressures are absent.
In the third quarter the pace of GDP growth declined to 2.9% over a year ago, reflecting some cooling in economic activity. The dynamics of the key macroeconomic indicators in October pointed to continuation of this trend with the growth of industrial production and retail sales subsiding. However, economic confidence indicators remain positive and labour market conditions together with credit expansion provide support to the domestic demand. According to the Bank of Russia estimates, the gross output remains close to its potential level.
The pace of bank lending growth is leveling off but remains relatively high, implying that the risks of a significant economic slowdown stemming from the tighter monetary conditions are minor.
Considering recent domestic and international macroeconomic developments the Bank of Russia judges that the current level of money market interest rates is appropriate for the near future. The Bank of Russia will continue to monitor inflation risks, including global food price dynamics, global economic developments and the consequences of the monetary conditions tightening for the Russian economy. In making monetary policy decisions the Bank of Russia will be guided by medium-term inflation goals and economic growth prospects, as well as the dynamics of inflation expectations.