Russian central bank lowers key rate to 10% from 10.5%

MOSCOW, Sep 16 (PRIME) -- The board of directors of Russia’s central bank has lowered the key rate by 0.5 percentage points to 10% in the light of slowing inflation and lower inflationary expectations amid unstable economic activity, the regulator said on Friday.

The annual pace of consumer price growth fell to 6.6% as of Monday after 7.2% in July, but lower inflation was caused by the ruble rate dynamics amid more favorable foreign conditions than it was expected earlier, the central bank said.

The regulator believes it is necessary to keep the rate at 10% until the end of the year, with reduction possible in the first or second quarters of 2017. The decision to reduce the key rate can also lower inflationary expectations, it said.

The central bank expects that annual inflation will amount to around 4.5% in September 2017 and will reach the target of 4% by the end of 2017.

“Taking into account the decision made and the remaining moderately tight monetary policy annual growth of consumer prices will amount to around 4.5% in September 2017 and will further decrease to the target level of 4% at the end of 2017,” the regulator said.

However, risks that inflation will not reach the target of 4% in 2017 still remain, the regulator said.

The central bank will estimate inflationary risks, and economic dynamics and inflation matching the basic forecast while making decisions on the key rate over the next few months, it said. The next meeting on the key rate is scheduled for October 28.

Russia’s gross domestic product (GDP) may return to quarterly growth already in the second half of 2016, but will grow less than 1% in 2017, the central bank also said, adding this forecast was based on the annual average oil price of U.S. $40 per barrel.

Anatoly Aksakov, head of the Association of Regional Banks, told PRIME that Russian banks will decrease loan interest rates by 1–1.5 percentage points within one to two months following the central bank’s key rate cut.

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