PRESS: Russian cbank may cut key rate by 2-3 pp in Jan–Mar

MOSCOW, Jan 21 (PRIME) -- The Russian central bank may reduce its key interest rate by 2-3 percentage points from the current 17% in January–March, news daily Izvestiya reported Wednesday, citing sources who participated in a meeting of the National Financial Board of the central bank at the end of December.

The key rate boost to 17% did not have an expected effect of bolstering the ruble. The ruble sunk even more soon after that boost, and the reaction by both households and the business community was negative, the sources said.

The current central bank’s interest rate translates into a 21-22% average loan rate for large companies, 24% for small companies and 30-60% for households, enough to paralyze business activity in the country, the sources said.

The next two meetings of the central bank are slated for January 30 and March 13. A source in the National Financial Board said he thinks that the central bank will reduce the key rate at the March meeting, without disclosing his reasons.

Runaway inflation may be an important reason for the central bank to postpone curtailing the key rate, Mikhail Gonopolsky, director of the center of macroeconomic forecasts and investment strategy of B&N Bank, said.

“Inflation will reach 15-17% annually by May–July, and in these conditions – furthermore in the situation of permanent risks of pressure on the national currency – it is unreasonable to reduce the rate in the first quarter yet, at least in accordance with the international inflation targeting practices,” he said.

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