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Russia Central Bank Signals More Rate Cuts Ahead

russia central bank 032318 13dec19 lt

Russia's central bank on Friday cut its key interest rate for the fifth consecutive policy session, citing slowing inflation, and signaled more easing is in store.

The Board of Directors, led by Governor Elvira Nabiullina, decided to cut the key rate by 25 basis points to 6.25 percent, the Bank of Russia said in a statement.

The reduction was in line with economists' expectations.

The bank noted that inflation slowdown is overshooting the forecast. Household inflation expectations continue to ease, while those of businesses are largely unchanged.

While the growth rate of the Russian economy increase in the third quarter, its stability is yet to be assessed, the bank said.

The bank expects the growth rate to be close to the upper bound of its forecast of 0.8-1.3 percent this year. The growth rate is forecast to rise gradually to 2-3 percent by 2022.

"Risks of a substantial global economic slowdown persist," the Bank of Russia said.

"Disinflationary risks still exceed pro-inflationary risks over the short-term horizon."

Annual inflation is expected to be 3.5-4 percent in 2020 and to remain close to 4 percent thereafter, thanks to the monetary policy stance.

The bank sees inflation to range between 2.9-3.2 percent at the end of 2019.

Headline inflation is expected to be below 3 percent in the first quarter of next year, when the effect of the VAT rate hike will be factored out from its calculation.

"If the situation develops in line with the baseline forecast", the Bank of Russia said it "will consider the necessity of further key rate reduction in the first half of 2020."

The next policy session is due on February 7.

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