Russia seen cutting rates on Friday, forecasts vary
By Andrey Ostroukh and Elena Fabrichnaya
MOSCOW (Reuters) – The Russian central bank is expected to cut its key interest rate on Friday for the fifth time this year as consumer inflation has slipped below its target and is on track to fall further, a Reuters poll showed on Monday.
Twenty-two out of 30 analysts and economists predicted that the central bank would lower the key rate to 6.25% from 6.50% <RUCBIR=ECI>.
The majority of factors, such as inflation and low rouble volatility, are in favour of a rate cut, while the U.S. Federal Reserve’s hawkish position limits the room for lower rates in Russia, said Stanislav Murashov, an analyst at Raiffeisen Bank.
“A 25-basis-point cut seems to be a balanced solution in this light,” Murashov said.
The central bank will announce its rate move at 1030 GMT on Friday, and Governor Elvira Nabiullina will elaborate on the decision and outlook at a news conference at 1200 GMT.
The central bank last cut the key rate by 50 basis points in late October, after trimming it in 25-basis points steps before.
Economic conditions have not changed much since then, and central bank officials kept their previous rhetoric that the bank will consider “the necessity of further key rate reduction at one of the upcoming Board of Directors’ meetings.”
Six experts in the poll predicted that the central bank would keep the key rate unchanged at 6.5% this week.
Vladimir Tikhomirov, chief economist at BCS Global Markets, said the central bank will hold the rate amid high global market volatility and a usual increase in demand for foreign currency in Russia in late December.
The currently downward inflation trend in Russia is also likely to change in coming months, Tikhomirov said.
Annual inflation, the central bank’s main area of responsibility, slowed to 3.5% in November, below expectations for 3.6% and the central bank’s 4% target.
Given that the inflation rate is expected to fall further and sluggish economic growth in Russia is expected to get a boost from cheaper lending, two experts in the Reuters poll predicted a 50-basis-point cut to 6% on Friday.
Sberbank CIB, an investment arm of the country’s largest bank, said full-year inflation in 2019 is likely to reach 3.0% to 3.1%, below the central bank’s forecast, which increases the likelihood of a rate cut to 6% this Friday.
At 6%, the key rate would be at the lower boundary of the 6% to 7% range that the central bank considers neutral from its monetary policy point of view.
(Writing by Andrey Ostroukh; editing by Larry King)