Rus­sian cen­tral bank cuts key rate again

The Daily Star (Lebanon) - - BUSINESS -

MOSCOW: The Rus­sian cen­tral bank low­ered its main in­ter­est rate to 8.5 per­cent from 9 per­cent Fri­day and said it ex­pected to de­liver more cuts in the next six months as in­fla­tion slows.

After putting mon­e­tary eas­ing on halt in late July, the cen­tral bank has now em­barked on a new rate-cut­ting cy­cle as in­fla­tion – its key area of re­spon­si­bil­ity – had weak­ened more than ex­pected.

Un­like in pre­vi­ous state­ments, the cen­tral bank did not say that global geopo­lit­i­cal risks along with fluc­tu­a­tions in the rou­ble posed up­side risks for Rus­sian con­sumer in­fla­tion.

“Tak­ing into ac­count a bal­ance of risks for in­fla­tion, the Bank of Rus­sia con­sid­ers it’s pos­si­ble to lower the key rate in the next half a year,” the cen­tral bank’s gov­er­nor, Elvira Nabi­ul­lina, said.

“We will ease mon­e­tary pol­icy smoothly,” she said at a news con­fer­ence where she ex­plained the ra­tio­nale for lower rates.

When asked about the scale of fu­ture moves, Nabi­ul­lina said the cen­tral bank was con­sid­er­ing trim­ming the rate by 25 or 50 ba­sis points, or putting it on hold.

“De­spite the size of today’s rate cut, the tone of the ac­com­pa­ny­ing state­ment, as well as Ms. Nabi­ul­lina’s press con­fer­ence, was very cau­tious,” Cap­i­tal Eco­nomics re­search firm said in a note.

Bar­clays Cap­i­tal said it now ex­pects the cen­tral bank to cut rates by 25 ba­sis points at each of the two re­main­ing meet­ings this year, on Oct. 27 and Dec. 15.

Re­nais­sance Cap­i­tal said it sees the cen­tral bank leav­ing rates on hold next month, be­fore slash­ing them by an­other 50 ba­sis points be­fore the end of the year.

Fri­day’s cut was in line with mar­ket ex­pec­ta­tions and the fourth so far this year, bring­ing the key rate to its low­est since late 2014, down from 10 per­cent at the be­gin­ning of this year.

The cen­tral bank also re­vised its eco­nomic fore­casts. Cit­ing stronger con­sumer and in­vest­ment de­mand, the reg­u­la­tor said it ex­pects gross do­mes­tic prod­uct to grow by up to 2.2 per­cent in 2017, up from its pre­vi­ous out­look of 1.3 to 1.8 per­cent.

With in­fla­tion risks sub­sid­ing, the cen­tral bank has an op­por­tu­nity to lower the cost of bor­row­ing to help un­der­pin an eco­nomic re­cov­ery.

An­nual in­fla­tion slipped to 3.3 per­cent in Au­gust, be­low the bank’s tar­get of 4 per­cent.

While in­fla­tion is run­ning at the low­est rate in the post-Soviet pe­riod, a level some an­a­lysts con­sid­ered unattain­able two years ago when an­nual price rises hov­ered near 17 per­cent, the cen­tral bank is still in the very early stages of se­cur­ing price sta­bil­ity, Nabi­ul­lina said.

Nabi­ul­lina said the cen­tral bank still needs to “an­chor in­fla­tion ex­pec­ta­tions,” which could be done by 2019 when the bank’s main rate could reach 6.5 to 7 per­cent.

The rou­ble hov­ered around 57.6 to the dol­lar Fri­day, shrug­ging off the rate cut. This un­der­pinned Nabi­ul­lina’s state­ment that the cen­tral bank sees “no risks for sub­stan­tial fluc­tu­a­tions” in the cur­rency. –

The cut was in line with mar­ket ex­pec­ta­tions and the fourth this year

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