Key rate unchanged

The press release mentions that the inflation outlook continues to feature significant risks. Higher international commodity prices, the adjustment of the domestic administered prices, the developments on global financial markets in the context of the sovereign debt crisis as well as the emergence of possible second-round effects from the supply-side shocks seen in recent quarters are the main inflationary risk factors. Although there are timid signs of a rebound in lending, the annual real growth rate of non-government lending remains in negative territory. Industrial production and exports slowed down in April, while leading indicators for the domestic demand remained negative.

Our baseline scenario shows that the NBR will maintain the key rate unchanged in 2011 and will start a gradual tightening cycle in 1Q12 to counterbalance a possible fiscal slippage ahead of elections and to bring inflation inside the targeted area.