UPDATE2: Russian central bank cuts key rate to 9.75% from 10%

(Adds comments by central bank’s chairwoman throughout)

MOSCOW, Mar 24 (PRIME) -- Russia’s central bank has lowered the key rate to 9.75% annually from 10%, as inflation is slowing down quicker than expected and inflationary expectations shrink, the regulator said on Friday.

INFLATION

In the first 20 days of March, annual inflation slowed to 4.3% from 5.0% in January. The ruble’s strengthening has contributed to slowing inflation, the bank’s Chairwoman Elvira Nabiullina said.

“Inflation risks have somewhat decreased, although they are still too high. In these conditions the target inflation level of 4% will be achieved if the moderately tight monetary policy is maintained until the end of 2017 and will be preserved in future,” the regulator said.

The risks that inflation will not slow to 4% until the end of 2017 have decreased, the central bank said.

Nabiullina said the central bank can keep moderately tight monetary policy during two to three years to keep inflation at 4%.

Economic Development Minister Maxim Oreshkin said inflation will reach 4% no later than in July. “The decision (to cut the key rate) mirrors a significant advance in inflation dynamics seen lately. In the coming months we expect inflation to continue slowing down partly due to the government’s policy to restrain tariff adjustments. The 4% level of inflation is to be achieved no later than in July,” he said.

GDP

Russia’s gross domestic product (GDP) has been growing in quarterly terms since the second quarter of 2016 and positive dynamics will remain. The central bank expects GDP to grow 1–1.5% in 2017 and 1–2% in 2018–2019.

The central bank does not expect that the country’s economy will switch to negative dynamics even if the oil price reduces, and does not rule out slower pace of growth only in late 2017–early 2018, Nabiullina said.

Investor activity is gradually restoring, unemployment remains at a stable low level, and growth of capital investment is expected in January–March.

Capital outflow is projected at U.S. $12–13 billion per year in 2017–2019, Nabiullina said. Lending to the economy is expected to grow by 5–7% in 2017, she added.

Nabiullina also said the situation on the currency market remains stable.

“The purchase of foreign currency by the Foreign Ministry may evoke short-term worsening of the exchange rate and inflationary expectations… Now we see that the situation on the currency market remains stable. The transactions did not have a significant impact on the ruble rate in conditions when factors for its strengthening prevailed,” she said.

OIL PRICE

The annual average oil price will amount to $50 per barrel in 2017, Nabiullina said.

“Based on the conservative approach to form the basic scenario, we assume reduction of the oil price to $40 per barrel by the end of 2017. In this case, the annual average oil price will amount to around $50 per barrel in 2017, significantly higher than in the previous scenario,” she said.

KEY RATE

The central bank will estimate further inflation dynamics and may gradually cut the key rate in the second and third quarters of this year. The next meeting of the regulator’s board of directors devoted to the key rate is scheduled for April 28.

The regulator does not rule out returning to key rate cuts by 0.5 percentage points in the future, Nabiullina said.

End