Inflation: I've been analysing the Bank of England's forecast over the past two years – here's how they got it wrong 
If the RBA’s right, interest rates may not fall for another year. Here’s why. 
The yen plunges to 34-year low despite interest rate hike 
Why central banks are too powerful and have created our inflation crisis 
Sure, the RBA froze interest rates on Tuesday, but there's plenty of pain to come 
The Bank of Russia (CBR) decided to hold its key rate at 11.0% and kept all other rates unchanged, in line with forecast and consensus. The statement was considerably more hawkish than in July when the CBR cut its key rate by 50bp. The CBR states the reason for holding is "due to the higher inflation risks amid persistent risks of considerable economy cooling. August saw a serious deterioration in foreign economic conditions." The CBR goes on to note that RUB depreciation has led to higher inflation and will continue to put pressure on prices.
Most importantly, the CBR announced changes in its economic forecasts. Previously the CBR's main scenario was for oil prices of $60 per barrel and growth of -3.2% in 2015. In 2016, it saw oil at $70 per barrel and growth of +0.7%. With the new baseline for oil at $50 per barrel for the next three years, it has lowered its growth forecast for 2015 to between -3.9% and -4.4%. Although the CBR does not supply new growth forecasts for 2016, based on this analysis it will be below zero. The CBR retains its forecast that 2016 inflation will be 7% and that 2017 inflation will decline to 4%.
The statement alludes to competing influences on inflation. It acknowledges the importance of exchange rate pass-through to inflation. At the same time, the CBR points to a cyclical downturn in the economy exerting downward pressure on prices. Thus if external conditions do not deteriorate further and the RUB stabilises, inflation will decline rapidly due to favourable base effects.
"We think the CBR has adopted a much more prudent framework for monetary policy. It appears to be ready to delay rate cuts until inflation actually begins to decline. The decision at the next meeting on 31 October will be data dependent with particular emphasis on global oil prices, the RUB and weekly inflation trends. The statement warns of additional pass-through from RUB depreciation in the next few months. This implies that the CBR will more likely remain on hold again in October. Governor Nabiullina will hold a press conference at 1:00 pm London time/8:00am New York time. The CBR will release its new forecasts in its Monetary Policy Report next week", says Barclays
