Russian central bank cuts key rate to 7.25% from 7.5% annually

MOSCOW, Jul 26 (PRIME) -- The Russian central bank has reduced the key rate to 7.25% from 7.5% as economic growth turned out to be below the central bank’s estimate, the authority said in a statement on Friday adding that it can reduce the rate further soon and pursue a neutral monetary policy in the first half of next year.

“This is due to weak investment activity and a significant fall of annual exports growth, partially because of weakening foreign demand,” the central bank said.

“Annual industry growth picked up in the second half of the year, but it may not have a sustainable character. Annual retail turnover growth continue to fall as real disposable households’ income decrease.”

The budget policy exacerbated economic growth slowdown in January–June.

Inflation fell to 4.7% on the year in June from 5.1% in May, and stood at 4.6% on Monday. Monthly inflation, seasonally adjusted, slowed down to 0.1% in June from 0.3–0.4% in February–May.

Consumer demand and temporary factors, such as strengthening of the ruble and decrease of fruit and vegetable prices due to an early harvest held down inflation.

Price expectations of companies decreased in June–July, households’ inflation expectations have not change much since April.

Risks that inflation will be lower than the central bank’s 4% target dominate over the risks that it will be higher in the short term. Increased and non-anchored inflation expectations remain a significant risk.

Growth of budget spending expected in July–December can accelerate inflation at the end of 2019– beginning of 2020.

“If the situation develops in line with the basic forecast, the Bank of Russia admits the possibility of a further reduction of the key rate at one of the upcoming meetings of the Board of Directors and a transfer to a neutral monetary policy in the first half of 2020,” it said.

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