elvira nabiullina : review of recent inflation developments in russia and economic outlook statement by ms elvira nabiullina, governor of the bank of russia, in the follow - up to the board of directors meeting, moscow, 14 june 2019. * * * today, the bank of russia has decided to cut its key rate to 7. 50 % per annum. we also revised our end - 2019 inflation forecast downwards by 0. 5 pp, to 4. 2 - 4. 7 %. should our baseline forecast materialise, we hold open the possibility of a further rate cut at one of the upcoming board meetings. we assume that we may shift to neutral monetary policy before mid - 2020. i will now highlight the factors we considered while making today ’ s decision. first. there is a stable trend towards inflation slowdown. it is attributed to the bank of russia ’ s key rate decisions including the preemptive hike in the second half of last year. we passed the inflation peak of 5. 3 %, slightly lower than we expected, in march. inflation slowing down from this lower peak is overall in line with our forecast. in the february - may period, prices rose by approximately 0. 3 - 0. 4 % a month, seasonally adjusted. that means that the monthly growth pace has returned to the lowest readings since last august and stands near 4 % in annual terms. annual inflation fell to 5. 1 % in may, and came in at 5 % precisely as at the beginning of this week. this dynamics is attributed to the following factors. the effect of the vat increase on inflation has run its course. the ruble ’ s strengthening since the beginning of the year made an additional contribution to inflation slowdown. higher oil prices and overall favourable conditions in financial markets helped. international investors ’ interest in russian assets recovered, which was the most distinctive in the ofz market. the agreements on retail fuel prices between the russian government and oil majors are continuing to play a significant role. consumer petrol prices rose in may by 2. 8 % year on year, and their growth is likely to be moderate in the near future. that said, the new regulation in this market, in particular, the offsetting mechanisms ( including reverse excise duties ), is rather complicated. currently, it is hard to accurately estimate its medium - term economic effectiveness, especially for scenarios providing for tangible oil price fluctuations. moderate domestic demand is also curbing inflation. this calls for a

these have significantly improved financial conditions, reduced financial fragmentation and fostered economic activity and inflation. in the first half of 2016, the euro area grew at an annualised rate of 1. 7 %, similar to last year ’ s growth rate. this figure is far from impressive, especially considering that the euro area is in the early phase of a recovery, after the second recession in 2012 and 2013. on the other hand, the unemployment rate, albeit falling, still remains above 10 %, amid a continuous increase in the participation rate in the labour force since the crisis. one positive aspect is that our policies have contributed to a decrease in financial fragmentation and that the dispersion of gdp growth and inflation across euro area countries is at the lowest level since the beginning of monetary union in 1999. another positive note is that the recent growth was largely driven by domestic demand. moreover, the recovery has proved resilient to a series of adverse shocks over the past year : the slowdown in china last summer, the acute stock market turbulence in the early part of this year and, most recently, the uncertainty created by the u. k. referendum. this resilience reflects, to a large degree, the amount of monetary expansion – actual and expected – that is embedded in financial prices. indeed, with the five packages of measures adopted since june 2014, we have been able to : reduce the cost of capital, produce rebalancing effects in broader asset markets, improve credit supply conditions and restore credit volume growth since the latter part of 2014, after two years of negative developments. in the latest move in march 2016, a powerful set of measures was taken, comprising an increase in the asset purchase programme, its extension to corporate bonds and the introduction of a new mediumterm liquidity facility with interest rates that can go as low as our negative deposit facility rate, contingent on the banks reaching a credit growth benchmark. yields on bank and non - financial bonds have eased in response to the measures taken, testifying to the effectiveness of the current monetary policy. funding conditions for banks improved as wholesale money market rates turned negative and as banks received direct support from new liquidity facilities with four - year maturities and low rates ( tltro - i and ii ). these developments have stimulated the pass - through of this funding cost relief to borrowing costs for both firms and households. 2 / 4 bis central bankers'speeches as a consequence, bank lending rates to non - financial corporations ( nfcs )