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Russia cuts key rate following record low inflation, more cuts expected

The Bank of Russia forecasts annual inflation to be 3-4 percent in late 2018 and remain close to 4 percent in 2019.

Reuters | Updated: 23-03-2018 16:40 IST | Created: 23-03-2018 16:40 IST
Russia cuts key rate following record low inflation, more cuts expected
The central bank also repeated its economic forecast for the gross domestic product to grow by 1.5-2.0 percent this year. (Image Credit: Wikimedia)

The Russian central bank cut its key interest rate by 25 basis points to 7.25 percent on Friday, citing record low inflation, and said it will complete its monetary easing cycle this year.

The central bank's rate cut, to 7.25 percent from 7.50 percent, was in line with market expectations.

"The Bank of Russia forecasts annual inflation to be 3-4 percent in late 2018 and remain close to 4 percent in 2019," the central bank said in a statement.

"In this environment, the Bank of Russia will continue to reduce the key rate and will complete the transition to neutral monetary policy in 2018," it said.

That means the central bank will bring the key rate closer to a range of 6-7 percent sooner than initially planned as inflation, once stubbornly high at double-digit levels, has stabilised below its four percent target.

Elvira Nabiullina, the bank's governor, is due to explain the rate decision at a press conference.

Friday's rate cut, the second so far this year, was widely priced in as the central bank's head of monetary policy said earlier this month he would recommend lowering the rate further.

The rouble showed a muted reaction to the rate move, firming slightly to 57.16 versus the dollar compared with 57.21 shortly before the central bank's announcement.

The central bank noted that annual inflation, which reached 2.2 percent in February, is likely to pick up in the second half of 2018, moving closer to its four percent target.

The central bank also repeated its economic forecast for the gross domestic product to grow by 1.5-2.0 percent this year.

"The Bank of Russia's general perceptions of the Russian economy's growth has remained unchanged. The Bank of Russia has slightly raised the oil price in its baseline scenario," the bank said without naming any specific figures.

The bank's next board meeting is scheduled for April 27.


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