Chairwoman: Cbank to cut key rate gradually to 6-7% in 1-2 years

MOSCOW, Nov 16 (PRIME) -- The central bank will gradually reduce the key interest rate to 6-7% in the next one or two years, Chairwoman Elvira Nabiullina said at a meeting at the State Duma, the lower chamber of the country’s parliament, on Thursday.

“There are factors supporting inflation and there is a factor of high inflationary expectations. We will reduce the interest rate gradually. We hope to reach the equilibrium, which is 6-7% under our estimates, in one or two years,” she said.

“The dynamics will allow us to prevent economic growth pressure… A rapid change of the key rate could increase the risk that inflation will accelerate, not stabilize… It can hurt the stability we have reached by now.”

The chairwoman said earlier that the Bank of Russia’s key interest rate may be lowered to 6.5-7% until 2019.

Nabiullina said that the period of the Russian economy’s recovery growth has finished, the growth rate is not high, but is already close to the potentially highest level for the present Russia’s economic structure.

“We project gross domestic product (GDP) to grow 1.8% in 2017. On the one hand, it is an apparently positive fact as the economy has restored faster than most people have expected and than we have expected,” she said.

“On the other hand, it means that the recovery growth period is almost over. Under our assessment, we have offset around 95% of the economic decline since 2015… Actually, we will fully compensate for the recession until the end of this year.”

Igor Dmitriyev, head of the monetary policy department of the central bank, said earlier that the central bank forecasted Russia’s GDP growth rate at 1.5-2% in the medium term and may revise it up.

Nabiullina also said that the central bank projects inflation at 2.5-2.7% in 2017 and expects that it will reach a 4% target in 2018.

“According to the latest data, inflation amounts to 2.6%. The slowdown is linked to both fundamental and temporary factors with the latter being more important,” she said.

The official added that the central bank is concerned with a high volatility of inflation.

“In June, we had inflation at 4.4%, which is about 50% more than now. This is a dramatic fluctuation,” she said.

Nabiullina also said that the central bank sees the probability that the oil price will stay above U.S. $40 per barrel in 2018 as high, but still sees a fall to below $40 as a possible scenario.

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