UPDATE: Chairwoman: Cbank sees room for key rate reduction Jun 19

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MOSCOW, Jun 5 (PRIME) -- Russia’s central bank sees room for further reduction of the key rate at the coming meeting of its board of directors on June 19, and an option of a 1 percentage point cut is also possible, Chairwoman Elvira Nabiullina said during a news conference on Friday.

“I can affirm once again that we see room for reduction of the rate, and a cut by 100 basis points will be considered among other options at the next meeting of the board of directors. But we will make a decision basing on the data we have already received and will receive, and on our elaborated inflation and gross domestic product (GDP) forecasts,” she said.

In April, the central bank reduced the key rate by 0.5 percentage points to 5.5% annually.

The chairwoman added that the regulator sees considerable room for further softening of the monetary policy, not only in 2020, but will “move gradually” considering the current risks.

Nabiullina said that the central bank will elaborate on its assessment of Russia’s GDP fall in April–June as anti-coronavirus restrictions persist.

The central bank considers gradual recovery of the economy as a basic scenario and will continue its policy to reduce the share of foreign currencies in Russian banks’ deposit portfolios and liabilities, she also said.

The central bank sees a rising influence of disinflationary factors in May, Nabiullina said.

“As to inflation, we can see a fall in inflationary pressure and a rise in influence of disinflationary factors in May. Weekly inflation amounted to nearly zero during the May holidays, and in the two last weeks it stood at 0.1% per week. The dynamics may be partially reflecting softening of the restrictions,” she said.

Russians’ inflationary expectations increased insignificantly, despite the scale of the shocks, but have already corrected down and will continue to fall, she also said, adding that no burst of inflation is expected on the back of the government’s social initiatives adopted amid the spread of coronavirus.

Nabiullina said that there are signs of recovery in banking lending as well.

“There are signs of recovery in the lending sector as well. The volume of Russian companies’ liabilities to the banks rose 0.3% from May 25 through May 31, which ensured a 0.4% growth in the entire May, according to preliminary data,” she said.

“The retail loan portfolio grew 0.5% from May 25 through May 31 to cover the fall seen in the first half of the month. Thus, the retail loan portfolio increased around 0.2% in May as compared with a 0.7% fall registered in April,” she added.

The peak of growth of non-performing loans in Russia will take place in October–December and in the first half of 2021, she also said.

Russia’s unemployment figures will be still high in May, but the indicator will gradually fall following recovery of the economy, Nabiullina said.

“We can see rising unemployment on the labor market, which amounted to 5.8% in April. According to our assessment, it is 5.6% in seasonally adjusted terms. Unemployment grew by around 1 percentage point as compared with March, and is seen at the level of early 2016, but it is still much lower than in many large economies,” she said.

“Operational indicators point to some additional rise in unemployment in May, but gradual recovery of the economic activity will provide staged restoration of unemployment figures in the second half of the year,” she added.

The chairwoman said that Russian banks’ profit will fall in 2020, but the figure will not be negative, and that the banks should use the profit to raise capital if it is necessary before paying dividends.

The central bank maintains its plans to sell off Otkritie Financial Corporation (FC) Bank, which has been bailed out since 2017, and the spring of 2022 is seen as a realistic date for the sale, Nabiullina said.

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