Russia’s central bank slashed its key interest rate for a second policy session in a row, in line with its earlier guidance, and signaled more easing in future as growth remains below expectations.
The Board of Directors, led by Governor Elvira Nabiullina, decided to cut the key rate by 25 basis points to 7.25 percent, the Bank of Russia said in a statement on Friday.
In June, the bank had slashed the rate by a quarter-point, which was the first reduction since March 2018.
Prior to that, the bank had kept the rate unchanged for three policy sessions in a row after hiking it in December 2018.
“Russian economy‘s growth rate is coming in lower than the Bank of Russia’s expectations,” the bank noted.
Weak economic activity, along with temporary factors, is limiting inflation risks over the short-term horizon, the bank noted.
The central bank expects inflation, which is currently slowing, to return to 4 percent early next year.
“If the situation develops in line with the baseline forecast, the Bank of Russia admits the possibility of further key rate reduction at one of the upcoming Board of Directors’ meetings and a transition to neutral monetary policy in the first half of 2020,” the central bank said.
Headline inflation sharply slowed to 4.7 percent in June from 5.1 percent in May. The rate likely slowed further to 4.6 percent in July, according to bank’s estimations.
In June, core inflation eased for the first time since March 2018 to reach 4.6 percent.
Significant risks are posed by elevated and unanchored inflation expectations, the bank said.
Growth has remained below expectations since the beginning of the year, primarily due to weak investment and a significant drop in exports due to poor external demand, the central bank added.
The next policy session of the Bank of Russia is scheduled on September 6.
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