Russian central bank says cuts key rate by 0.25 pp to 7% annually

MOSCOW, Sep 6 (PRIME) -- The Russian central bank has reduced the key rate by 0.25 percentage points to 7% annually as economic growth remains below the bank’s expectations, the central bank said in a statement on Friday.

“Inflation continues to slow down. At the same time, the inflationary expectations remain elevated. Russian economic growth is still lower than expectations of the Central Bank of Russia. The risks of a significant slowdown of the global economy became stronger. The risks of acceleration and deceleration of inflation until the year’s end are balanced,” the authority said.

Demand for Russian exports fell as the global economy slowed down and investment became sluggish, including state investment. The figures for July–August pointed to the risk that the situation in the industry will worsen although in July there was an annual increase. Retail sales continued to fall amid stagnation of real disposable income. The labor market does not create excessive inflation pressure.

The central bank cut 2019 gross domestic product (GDP) rise estimate to 0.8–1.3% from 1.0–1.5%. It expects growth of 2–3% a year by 2022.

Inflation slowed down to 4.3% on the year in August from 4.6% in July.

The consumer price dynamics and seasonal deflation due to an earlier start of a new harvest held down inflation. A high base of prices for the key types of engine fuel was another limiting factor.

Inflation expectations remained elevated in August but somewhat decreased and are to fall in the future.

The central bank cut its inflation forecast for 2019 to 4.0–4.5% from 4.2–4.7%. The central bank estimates future inflation at 4%.

The credit conditions continued to ease since the last meeting of the board of directors of the central bank as market players expected the central bank to cut the key rate further and expected lower U.S. and the euro zone key rates. The Russian central bank’s rate reduction will favor further easing of the credit conditions.

The central bank will consider cutting the key rate more at one of the next meetings if the situation develops in line with the basic forecast.

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