The Russian central bank cut its key interest rate on Friday and said one or two more cuts were possible later this year as Russia faces sluggish economic growth and slowing inflation.
The central bank trimmed the key rate to 7.50 per cent from 7.75 per cent, lowering the cost of lending for the first time since March 2018 and returning its level before the previous rate increase, in December.
Governor Elvira Nabiullina said two more rate cuts were possible this year if the central bank does not face “any negative surprises.”
Even though the rate decision was widely expected by the market, the rouble climbed to three-week highs against the dollar on expectations of further rate cuts.
The central bank said it decided to trim the key rate towards 6 per cent to 7 per cent, the range it views as neutral, as annual inflation slows and economic growth misses expectations.
“If the situation develops in line with the baseline forecast, the Bank of Russia admits the possibility of further key rate reduction at one of the upcoming Board of Directors’ meetings and a transition to neutral monetary policy until mid-2020.”
The next board meetings are scheduled for July 26, Sept. 6, Oct. 25 and Dec. 13. Only every second board meeting is accompanied by Nabiullina’s press briefing and is considered to be the one where chances of a rate move are higher.
“We now see high likelihood of a couple of cuts in July and September,” ING Bank said in a note.
“The overall dovish undertones of the statement strongly suggest that the CBR will make another 25 basis point cut in 2019,” analysts at Citi said.
Capital Economics research firm said it expected the key rate to be lowered to 6.75 per cent by mid-2020.
The central bank boosted expectations for a rate cut by lowering its 2019 economic growth forecast to 1.0 per cent to 1.5 per cent from 1.2 per cent to 1.7 per cent.
The bank raised the key rate twice last year to curb rising prices. It now says inflation was on track to slow to 4.2 per cent to 4.7 per cent by the end of the year, moving towards its 4 per cent target quicker than previously thought.
The central bank acted in line with a recommendation of the International Monetary Fund which said in late May that it was time to cut rates.
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