Russian cbank says cuts key rate by 0.5 pp to 10.5%

MOSCOW, Jun 10 (PRIME) -- The board of directors of the Russian central bank has reduced the key rate by 0.5 percentage points to 10.5% annually after leaving it without changes for 10 months, the authority said in a statement on Friday.

“The board of directors notices positive inflation stabilization processes, lower inflation expectations and risks as there are signals that the economy are about to start recovering,” the central bank said.

Annual inflation has consolidated at 7.3% and monthly price changes, seasonally cleared, at about 5%. Improved economic activity is accompanied by weak consumer demand and high savings, which is why consumer prices are not under an upward pressure. Inflationary expectations are declining.

The central bank forecasts inflation at 5–6% at the end of 2016, at below 5% in May 2017 if the current policies remain, and at 4% at the end of 2017. Still, the risks that the 4% inflation target is not attained remain high mainly because of high inflationary expectations, the absence of budget spending reduction and uncertainty over salary and pension adjustment rules.

The gross domestic product (GDP) dynamics in January–March demonstrated higher resilience to changes in oil prices. Albeit some industries are in recession, including several branches which were traditional drivers of the Russian economy and investment are still falling, imports replacement and exports diversification continue successfully. A quarterly GDP increase is expected no later than in July–December 2016, the central bank said.

The authority forecasts a GDP 1.3% rise in 2017.

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