"Bank of Russia will choose between two options for reducing key rate" - Dmitry Pianov

On September 12, the Bank of Russia will choose between two options for reducing the key rate: minus 100 or 200 basis points. This opinion was expressed in a conversation with journalists by VTB First Deputy Chairman Dmitry Pianov; according to him, there is a long list of arguments to support the likelihood of one scenario over another.

 "The current rate of movement above the target basic inflation components speaks in favor of a more cautious step. Inflation expectations have increased slightly and have not yet responded to the slowdown in inflation; there is a deviation from the level of 2017-2019, which can be considered a prototype of the period of success. In addition, there is uncertainty with the level of the federal budget deficit, an acceleration of corporate lending in July compared to June, which is reflected in the dynamics of the money supply," said Dmitry Pianov.

Among the arguments against a cautious step is the GDP dynamics in Q2, at 1.1% against the forecast of 1.8%. This figure is very close to the lower limit of the range – 1-2% – that the Bank of Russia forecast.

"There are more arguments in favor of a smaller step to reduce the rate, but the argument about weak GDP dynamics is stronger in favor of a wider step. Now it is important not to freeze the economy. I myself cannot choose between these two options yet," the top manager said.

 The key rate is currently at 18%. The Bank of Russia set this figure at a meeting in July.