Chair says cbank cuts key rate 0.5 pp on new 2018 econ outlook

MOSCOW, Dec 15 (PRIME) -- The Russian central bank has reduced the key rate by 0.5 percentage points after changing a 2018 economic outlook and after OPEC and non-OPEC oil producing states agreed to extend an output reduction deal, Chairwoman Elvira Nabiullina said at a press conference on Friday.

The board of directors of the central bank cut the key rate to 7.75% annually from 8.25%.

“This step, 50 basis points, was made because our outlook for the 2018 prospects has changed. The agreement on oil production limits has been prolonged, uncertainty concerning oil prices has abated, this reduces pro-inflation risks from this side significantly,” Nabiullina said.

The authority has increased its oil price forecast in its basic scenario to about U.S. $55 per barrel from $44 in 2018 but expects that in the medium term prices will fall to a level of slightly above $40 again.

“Our certainty that low inflation will persist has increased,” Nabiullina said. Annual price growth for the majority of goods has slowed down to 4% and lower, the chairwoman said. Strengthening of the ruble has slowed inflation down by slightly less than 1 percentage point, a record harvest contributed a little less than 0.5 percentage points.

Annual inflation will remain at about 2.5%, the level attained in November, until the end of 2017, she said.

The central bank has increased the forecast for growth of credits to the economy in 2018 to 8–11% from 3–5%.

The net capital outflow projection was changed to U.S. $16 billion from $10 billion. The net capital outflow forecast for 2017 stands $29 billion.

Nabiullina also said that the central bank presumes unchangeable Western sanctions in the base scenario of the forecast.

The central bank will most probably continue to reduce the key rate in January–June 2018 but will do so gradually, possibly, with pauses, she said. The authority sees it too early to release forecast timetables for the key rate cuts but does not rule out that it will do so in the future.

The possible decrease steps are 0.25 and 0.5 percentage points, Nabiullina said.

The authority will approach neutrality in its monetary policy gradually, Nabiullina said, adding that the central bank is not considering raising the key rate in case of external shocks such as new sanctions, although a short outburst of volatility on some markets is not ruled out in this case.

The central bank is not ruled out to acquire Russia’s sovereign debt if it is affected by new U.S. sanctions, Nabiullina said.

The central bank’s policies are aimed at a gradual limit of special lending instruments, she said.

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