Russian central bank cuts key rate by 0.25 pp to 7.5%

MOSCOW, Jun 14 (PRIME) -- The Russian central bank has slashed the key rate by 0.25 basis points to 7.5% annually and did not rule out further reduction at one of the next meetings, it said in a statement on Friday.

“Household inflation expectations and companies’ price expectations did not change significantly in May, remaining elevated. Economic growth was lower than expected by the central bank in January–June. Short-term pro-inflation risks have fallen as compared with March,” the central bank said.

Annual inflation fell to 5.1% in May from 5.2% in April and amounted to 5.0% as of June 10. Monthly inflation has been close to 4% since February, as translated in year-on-year dynamics.

The short-term pro-inflation risks, such as an increase of value added tax (VAT) and revision of interest rates by the U.S. Federal Reserve System (Fed) and other central banks of developed countries have decreased.

The central bank reduced the annual inflation forecast in 2019 to 4.2–4.7% from 4.7–5.2%.

Economic growth was close to the level of October–December 2018 in January–April. Exports growth slowed down because of lower foreign demand, investment activity was limited. Annual retail growth fell as people’s income was limited.

The central bank cut its gross domestic product (GDP) forecast for 2019 to 1.0–1.5% from 1.2–1.7%.

The borrowing conditions have somewhat eased since the last meeting of the central bank’s board of directors. The OFZ bond and deposit rates have fallen, potential for their growth is mostly exhausted.

The central bank expects to switch to a neutral monetary policy by the middle of 2020.

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