Russian central bank cuts key interest rate to 6 per cent

The Russian central bank lowered its key interest rate to 6.00% on Friday, cutting the cost of lending for the sixth consecutive meeting amid slowing inflation, and said a further rate cut was possible at an upcoming meeting.

The cut was in line with a consensus forecast, surprising those who expected the central bank leave rates unchanged amid increased global market volatility and risks of higher state spending under a new Russian government.

In a Reuters poll late last month, most analysts predicted the central bank would trim the rate by 25 basis points.

“If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate reduction at its upcoming meetings,” the central bank said in a statement.

The central bank said it cut the key rate because “inflation slowdown is overshooting the forecast.” Inflation, a key indicator it strives to keep under control, slowed to 2.4% in January, having slid below its 4% target several weeks ago.

“In its key rate decision-making, the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets,” the bank said.

The cut brought the key rate to the lower boundary of the 6% to 7% range that the central bank considers neutral from a monetary policy point of view. The central bank did not say whether it would consider revising the neutral range later this year. The rouble weakened after the move, sliding to 63.91 versus the dollar from the 63.82 seen before the cut.

The central bank said it kept inflation forecasts unchanged. “Annual inflation will come in at 3.5%-4.0% in 2020 and will remain close to 4% further on,” it said.

After reaching 1.3% in 2019, economic growth in Russia is seen picking up to 1.5% to 2.0% in 2020 and then up to 3% in 2022, the central bank said.

Elvira Nabiullina, governor of the central bank, will shed more light on the central bank’s forecasts and monetary policy plans at a news conference at 1200 GMT.

Reuters