Rus­sian cen­tral bank cuts key rate

The Myanmar Times - - International Business -

RUS­SIA’S cen­tral bank has cut its key in­ter­est rate by half a per­cent­age point to 10 per­cent, but warned it couldn’t pro­vide an­other quick jolt to jump-start stalled eco­nomic growth.

The Bank of Rus­sia said in a state­ment that the cut, the first since June and widely ex­pected by an­a­lysts, was pos­si­ble thanks to a “de­crease in in­fla­tion ex­pec­ta­tions and un­sta­ble eco­nomic ac­tiv­ity”.

How­ever, the cen­tral bank made clear it in­tends to hold off on an­other cut un­til next year at the ear­li­est.

Rus­sia’s en­ergy-re­liant econ­omy is cur­rently mired in the long­est re­ces­sion of Pres­i­dent Vladimir Putin’s 16year rule on the back of low oil prices and West­ern sanc­tions over Moscow’s med­dling in Ukraine.

Cut­ting in­ter­est rates pro­vides a boost to growth as it makes it cheaper for com­pa­nies and con­sumers to bor­row funds to in­vest and buy goods.

While in­fla­tion dropped to 6.6pc in Septem­ber from 7.2pc in July, the cen­tral bank said that to se­cure “a steady de­cline in in­fla­tion the cur­rent key rate needs to be main­tained till end-2016 with a pos­si­bil­ity to cut it in 2017 Q1 to Q2”.

Although the cut had been ex­pected, the cen­tral bank’s “sur­pris­ingly hawk­ish” tone is “at least in part aimed at damp­en­ing ex­pec­ta­tions” on the mar­ket re­gard­ing fur­ther cuts, said Liza Er­molenko, emerg­ing mar­kets econ­o­mist at Cap­i­tal Eco­nom­ics.

Cen­tral bank chief Elvira Nabi­ul­lina con­firmed that it wanted to send an em­phatic mes­sage that its pri­or­ity is low­er­ing the in­fla­tion rate to 4pc by the end of 2017.

An­other key in­ter­est rate cut this year is an “ex­tremely un­likely sce­nario”, she said, and will only hap­pen if the Rus­sian econ­omy per­forms con­sid­er­ably bet­ter than fore­cast.

The bank will hold two more meet­ings be­fore the end of the year.

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