Central bank says cuts key rate by 0.25 pp to record low of 4.25%

MOSCOW, Jul 24 (PRIME) -- The Russian central bank has reduced the key rate by 0.25 percentage points to a new historical low of 4.25% annually, the authority said in a statement on Friday.

"The disinflation factors continue to have a significant influence on inflation. After reduction in May–June, inflationary expectations of households and business have stabilized in general. Although easing of the restrictive measures favors recovery of economic activity, recovery of the global and Russian economy will be gradual. In these conditions, the risk of inflation falling below 4% in 2021 remains," the central bank said.

The authority will consider cutting the rate even more in case if the situation develops in line with the basic forecast of the central bank.

Annual inflation in 2020 is estimated at 3.7–4.2% and in 2021 at 3.5–4.0%. It will later remain at about 4%. The June dynamics was heterogenic as supply of goods and services recovered unevenly. The inflation increase to 3.2% was in many respects caused by a low base effect. Inflation in January–June is largely influenced by a sharp fall of demand in April–June due to the pandemic.

The gross domestic product (GDP) will likely fall by 4.5–5.5% in 2020 and recover by 3.5–4.5% in 2021 and 2.5–3.5% in 2022. Industrial output, and domestic and foreign orders decline slowed down in June, unemployment growth stopped. Indirect factors point to a certain rise of investment activity. But exports decreased in line with an OPEC plus agreement which hurts the economy. Recovery of the Russian economy can be unstable due to a decline of the real incomes of households and foreign demand.

Severance of logistic chains and deferred demand can push prices up in the short term.

The monetary conditions have eased since the last meeting of the central bank’s board of directors but dynamics in various segments of the Russian financial market was mixed.

The next meeting of the board of directors of the central bank to consider the key rate will be held September 18.

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