The statement of the Chairman of the Bank of Russia Elvira Nabiullina at the meeting of the Board of Directors on 20 March 2020

Today the Board of Directors decided to keep the key rate unchanged at 6.00% per annum.

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Since the last meeting of the Board of Directors, the situation has changed dramatically — in the first place in the global economy, on global commodity and financial markets. Now events develop according to another scenario than assumed in our baseline forecast in early February.

I would say that the Board of Directors today took place outside the box. First, we have considered, weighed mixed solution on the key rate. Secondly, we took not only the rate decision, but a range of measures aimed at preserving financial stability, the support of citizens and business, lending to the economy in a pandemic coronavirus. Therefore, although the meeting today is not the reference, we hold a press conference to explain our assessment of the situation and decisions taken.

Will primarily focus on the nature of the events and peculiarities of their influence on the Russian economy. It largely determines the logic of our decisions and actions.

The situation now is really difficult. In the world and in Russia. Pandemic coronavirus and measures to limit its pressure on the global economy, which reduces both the production of and demand affects the behavior of businesses and households. Financial market volatility increased sharply. Simultaneously with the development of the pandemic have been dramatic drop in oil prices associated with significant production growth and a substantial decrease in consumption.

The uncertainty and anxiety about the future development of the situation with coronavirus may cause local increased demand for private goods with long storage periods and use. Although it has no long-term consequences, but makes the dynamics of prices more volatile, which may lead to higher inflation and inflation expectations. In the future, on the contrary, may weaken demand, which will have a downward impact on the growth rate of consumer prices.

The slowdown in the global economy, in turn, led to the exit of investors from risky assets. This has increased the volatility of capital flows and fluctuations in global financial markets, led to a rise in country risk premiums. Global volatility, along with the sharp decline in oil prices affected the Russian financial market, led to the weakening of the ruble. This will have proinflationary effect and can influence inflation expectations.

Also, dropped the price of financial assets, increased yields on the Russian debt market. Requires special attention to ensure financial stability.

So today, taking a decision on the key rate and the package of measures to support lending, we proceeded from a comprehensive assessment of all these factors, the balance of risks for growth and inflation, and for reasons of financial stability.

As for key rates, I have already said, we considered rarely, three options — to reduce, increase or leave unchanged.

In favor of reducing the key rate was our understanding of the medium-term factors of inflation dynamics. In recent months, before the period of volatility, the disinflationary factors in the economy prevailed. And these domestic disinflationary factors will not go away. Moreover, in the period of the epidemic and measures for its restriction, they are even worse: people have fewer opportunities to make purchases of goods and services, it creates pressure on the business, and hence on incomes. Accordingly, we can see slower demand growth. So now, not only in the short term but in the longer term internal factors on the demand side is largely biased towards news. And, given the lags in the impact of monetary policy on the economy, and in the absence of other significant factors would be a valid step to reduce the key rate now. In recent weeks several Central banks in the countries where they are mainly these factors that made such decisions.

However, the short-term balance of risks has shifted to preinflation. Under the influence the weakening of the ruble inflation in this year is not just closer to the goal faster than we previously thought, but may temporarily exceed it. Obviously, the dynamics of financial markets, risks of a possible further decline in oil prices affect inflation and devaluation expectations. And here it is important to prevent further inflation spiral. To stabilize expectations shown increasing interest rates. In addition, we understand that in conditions of high volatility in the financial market our decision on monetary policy can affect financial stability. And if we consider only these factors, it would be appropriate the decision to raise the key rate.

The decision to keep the key interest rate, which we accepted, in the current environment is balancing the influence of short-term and medium-term, risks to inflation, the economy and financial stability. We expect that after a possible temporary increase of inflation and decrease in economic activity in 2020 will happen in the future improvement of economic dynamics and inflation back to the target of close to 4% in 2021 taking into account the monetary policy.

Concerning signal for the future, we will continue to use the same logic when making decisions, will each time assess balance, the balance of risks associated with the adoption of a decision in a particular situation.

I stress that the decision on the key rate was taken in combination with other measures, the Bank of Russia, aimed at limiting risks to the economy and support citizens in challenging conditions.

In addition to steps already taken earlier today, the Bank of Russia introduces a wide set of additional measures.

These measures are primarily aimed at ensuring financial stability and saving potential of the financial sector in lending to the economy, especially the citizens and businesses that are more vulnerable in the current circumstances. These measures to support lending to small and medium enterprises, mortgage lending, protection of the interests of citizens affected by the spread of coronavirus. We understand that time should be given to how financial institutions and borrowers to adapt to changing conditions. Therefore, the measures aimed at expanding opportunities and increasing the willingness of banks and other financial institutions to restructure and extend loans to citizens and businesses, which were under the influence of the pandemic. Will also increase the availability of online payments for the population and measures taken to support online trading.

In addition, we are actively working with financial institutions that any development of the situation to ensure the continuity of the financial sector and the availability of financial infrastructure. Such experience already is in other countries, we consider and apply. We have developed the relevant recommendations, working individually with the largest financial organizations, interact with the associations of financial market participants and self-regulatory organizations monitoring the development and implementation of financial institutions of appropriate measures. To ease the transition to remote work employees, we prepare the easing of requirements for submission of reports. We also temporarily waive inspections, except in cases that require urgent response.

Note that unlike changes in the key rate, which affects the economic processes with a lag, regulatory breaks have a faster and more targeted effect, which is important in a situation when you need to provide operational and preventive effect. The measures, along with the relief of financial stability risks, limit the incident of the tightening of domestic monetary conditions against the backdrop of global volatility.

We work closely with the Government, are in constant contact for rapid exchange of information, development when required integrated solutions to mitigate the impact of negative factors on citizens, the economy and the financial sector.

20 Mar 2020