Russian central bank lowers key rate to 7.5%, signals more cuts

FILE PHOTO: A Russian flag flies over Russian Central Bank headquarters in Moscow
FILE PHOTO: A Russian flag flies over Russian Central Bank headquarters in Moscow, Russia December 3, 2018. REUTERS/Maxim Shemetov

June 14, 2019

MOSCOW (Reuters) – The Russian central bank on Friday cut its key interest rate for the first time this year in line with market expectations, paving the way for further monetary easing to tackle slowing economic activity.

The bank, acting on a slowdown in inflation, cut the key rate to 7.50% from 7.75%, the level it was at before the previous rate increase in December.

“(The) annual inflation slowdown is continuing… Economic growth in the first half of 2019 is lower than the Bank of Russia’s expectations,” the central bank said in a statement, explaining the move.

The central bank said more rate cuts were likely in the next few months.

“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 bank, which hiked the key rate twice last year to rein in rising consumer prices, said inflation, its main remit, was on track to slow towards the 4% target quicker than previously expected.

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.

The bank said annual inflation reached 5% as of June 10, down from 5.1% in May. The rouble firmed to 64.35 versus the U.S. dollar from a level of 64.42 seen shortly before the central bank’s decision. Elvira Nabiullina, governor of the central bank, will elaborate on the central bank’s monetary policy at a news conference at 1200 GMT. The next rate-setting meeting is scheduled for July 26.

(Reporting by Andrey Ostroukh, Elena Fabrichnaya, Maria Kiselyova; Writing by Gabrielle Tétrault-Farber and Andrey Ostroukh; Editing by Christian Lowe)

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