Russia cuts its key interest rate amid sustained inflation drop

Key interest rate cut by Russia
Key interest rate cut by Russia

Key interest rate cut by Russia

The Russian Central Bank lowered on Friday its key interest rate by 0.5 percentage points to 10 percent, citing slowing inflation among signs of economic recovery.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he bank said in a statement that it intended to maintain this rate till the end of 2016 in order to support the sustainable inflation decline trend, and could cut it further in the first or the second quarter of 2017.

Russia’s annual inflation fell to 6.6 percent by Sept. 12 from 7.2 percent in July, “amid a more favorable external economic environment than expected earlier,” the statement said.

It said the unemployment in Russia remained stable and low, import substitution stepped up and certain non-commodity exports expanded, while the industry, including technology-intensive production, discovered new opportunities for growth.

But the bank warned that continued revival in production activity was still “unstable and patchy” across Russian industries and regions, and more time was needed for positive trends to develop and get rooted.

Certain industries stagnated or showed output growth slowdown, while investment continued to contract, it said.

The bank said the country’s Gross Domestic Product (GDP) could rise in the second half of this year, but it expected the growth to stay below 1 percent in 2017.

“[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]his forecast is based on the conservative assumptions of sluggish growth in global economy, average annual oil price staying around 40 U.S. dollars per barrel and persistent structural constraints for the Russian economic development,” it said.

In its previous June forecast, the bank said it expected the GDP to increase by 1.3 percent in 2017.

Russia’s GDP decline slowed down to 0.6 percent in the second quarter of 2016 from 1.2 percent in the first quarter, according to the Russian Federal Statistics Service.

The bank said it expected the lowering of the rate and tight monetary policy to allow annual inflation to decline to 4.5 percent in September next year, and to fall further to 4 percent by the end of 2017.

But it said the risks of inflation to be above 4 percent by end-2017 remained.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he reasons behind were potential weaker household saving motives, uncertain prospects of indexation of wage and social payments and volatility in global commodity and financial markets, it said.

The Russian Central Bank lowered the rate by 0.5 percentage points to 10.5 percent in June for the first time since August 2015 on expectations of the country’s imminent economic recovery and stable inflation.


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