The Russian Central Bank chose to lower the key rate by 0.5 percentage points to 10% for the first time since June, according to the regulator’s press release published on Friday. The regulator explained the move as an attempt to fortify the inflation slowdown Russian Federation is seeing this year.
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Russia’s central bank will probably leave interest rates on hold for the rest of the year after cutting them on Friday, its governor said, stressing cautious monetary policy was the best way to achieve consistently low inflation.
“The trajectory for cutting rates is tailored specifically to the goal of lowering inflation to 4 percent”, Nabiullina told a news conference after the rate decision, which was in line with economists’ expectations.
In June, the Central Bank cut the key rate from 11 to 10.5 percent for first time in eleven months.
The next meeting of the Board of Directors of the Russian Central Bank in 2016 is scheduled for October 28.
Inflation slowed to 6.9 percent year on year in August RUCPIY=ECI from 9.8 percent in January.
The central bank forecast inflation would be at 4.5 percent in September 2017 and would then fall to the bank’s 4 percent target in late 2017. In 2015, inflation was 13 percent. However, “in reality, the decrease of nominal rates has a limited capacity, and the economy will maintain moderately tight monetary conditions for quite a long period of time”.
Analysts said the central bank’s rhetoric was tougher than expected and speculated the bank could be concerned about inflation risks linked to fiscal policy or the possibility the Federal Reserve will soon raise USA interest rates.
“This is due to the need to maintain positive real interest rates at a level that will ensure the demand for lending that does not lead to an increase in inflationary pressure, as well preserve the incentives to make savings”, the regulator said.
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Even though such decisions have usually weakened the ruble, the Russian currency didn’t show any significant reaction on Friday, trading at 65 against the dollar and 73 against the euro.
