UPDATE: Russian cbank cuts key rate to 9.25% annually from 9.75%

(Adds details in paragraphs 6–13)

MOSCOW, Apr 28 (PRIME) -- The board of directors of Russia’s central bank cut the key rate to 9.25% annually from 9.75% as inflationary expectations fall and economic activity rises, the regulator said in a statement on Friday.

“The board of directors registered a slowdown of inflation to the target level and a continuous decrease of inflationary expectations, as well as restoration of economic activity,” the central bank said.

“At the same time, inflationary risks persist. In conditions of a moderately tough monetary policy the inflation target of 4% will be reached before the end of 2017 and maintained close to this level in 2018–2019.”

In future, while making decisions on the key rate, the authority will take into account the ratio of probability of the oil price fall to U.S. $40 per barrel or rise, inflation dynamics, and economic development compared to the forecast.

“Still, the estimate of the Bank of Russia of a possible general scale of contraction of the key rate until the end of 2017 has not changed,” the statement read.

INFLATION

Inflation slowed down to 4.2–4.3% as of Monday, a contraction from 4.6% in February, the central bank said.

“In March, the slowdown in the growth of prices on all major groups of goods continued. The strengthening of the ruble due to rather high oil prices, a steady interest of foreign investors in investment in Russian assets, and a decrease of the country premium to risk contributed significantly to the slowdown of inflation,” the regulator said.

The slowdown resulted in lower inflationary expectations of individuals and businesses in January–March, but the trend may stop due to a seasonal rise of food prices.

Households still maintain the behavior model of saving money, but signs of restoration of the consumer activity may be seen. Consumer spending will gradually grow under weak dynamics of real disposable incomes of people, the authority said.

Still, inflation risks may worsen due to volatility of world commodity and financial markets, and talks between OPEC and non-OPEC states on prolongation of the oil production cut deal may have an impact. Steadying inflation close to the target level may take a long time, and this prompts mid-term inflationary risks.

ECONOMIC ACTIVITY

The bank said that the Russian economy continued to recover in January–March, adding it expects fixed capital investment to grow. “There still is positive dynamics of industrial production, and lower unemployment is registered,” the central bank said.

The recovery of real wages in annual terms will support a gradual improvement of consumer activity, which will create no additional inflationary pressure due to a growing offer of services and goods.

Taking into account the current dynamics, the central bank expects Russia’s gross domestic product (GDP) to grow in 2017–2019 even if the oil price falls under a conservative development scenario.

End