Russian central bank cuts key rate
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.