Russia’s Central Bank has cut its key interest rate to 4.25% in its latest move to help get the Russian economy firing after the coronavirus pandemic.

The latest cut — from 4.5% — sets a new record low for Russia’s interest rates, and is the third consecutive downwards move from the Central Bank since it started cutting rates in mid-April in response to the economic impact of the pandemic.

Markets expected a cut, though analysts were split between whether the Central Bank would cut by 25 or 50 basis points. The bank stuck to the more cautious approach, but in a statement signalled more rate cuts were likely to come, possibly at its next meeting in September. Most forecasts predict the bank will take rates down to 4% by the end of the year.

Inflation is currently running at 3.2% — well below the Central Bank’s target rate of 4%. While cuts are unlikely to help restore inflation toward the bank’s target this year, VTB Capital analyst Alexander Isakov said in a research note before the decision was published that further downwards moves signal the bank is also worried inflation could undershoot in 2021 amid a weak economic recovery.

“The recovery of the global and Russian economies will be gradual despite the fact that the easing of restrictions revives economic activity,” the Central Bank said in a statement. “In these circumstances, there is a risk that in 2021 inflation might deviate downwards from the 4% target.”

The bank also updated its macroeconomic forecasts. It expects Russia’s GDP to decline by 4.5-5.5% in 2020, followed by an expansion of 3.5-4.5% next year.

Governor Elvira Nabiullina will add more details on the Central Bank’s outlook for the economy at a press conference in Moscow later on Friday afternoon. Markets are particularly focused on her assessment of the so-called neutral rate — an interest rate which does not have any impact on inflation.

The bank previously believed the neutral rate was 6%, but analysts believe it might now put the rate somewhere closer to 5%. A lower assessment of the neutral rate from the Central Bank would be a strong signal to the markets that it expects interest rates to stay near these historic lows for longer as Russia and the global economy emerge from the crisis.

Via The Moscow Times

READ ALSO  SE: Will central banks adopt bitcoin in 2021?