You are using an older browser version. Please use a supported version for the best MSN experience.

Russia opts for bigger rate cut with inflation at record low

LiveMint logoLiveMint 15-09-2017 Anna Andrianova

Moscow: Russia’s central bank resumed monetary easing with this year’s second rate cut of a half a percentage point after price growth decelerated below its target and inflation expectations fell to a record.

The one-week auction rate was lowered to 8.5 % from 9 %, according to a statement on Friday. All but six of the 41 economists surveyed by Bloomberg correctly forecast the move, with the rest predicting a 25 basis-point cut.

Governor Elvira Nabiullina will hold a news conference at 3 pm in Moscow. Policy makers will also issue updated forecasts later in the day.

“During the next two quarters, the Bank of Russia deems it possible to cut the key rate further,” it said in the statement.

“The Bank of Russia will assess the risks of inflation’s material and sustainable deviation from the target, as well as consumer price movements and economic activity against the forecast.”

The central bank has some catching up to do after a summer surge in food prices and geopolitical tensions forced a pause in its easing cycle in July.

As its “moderately tight” stance left Russia with some of the highest real rates globally, the surprise slowdown in inflation and gains in the ruble are making room for policy makers to deepen easing.

‘Reaction Function’

The Bank of Russia “wants to be consistent —lower rates when inflation decreases, be more cautious with rate cuts when inflation is more sticky—in order to help the market understand its reaction function,” said Sebastien Barbe, head of emerging-market research and strategy at Credit Agricole CIB.

Although annual inflation has swung between 4.4% in June to 3.3% in August, the central bank considers those readings to be consistent with its goal of 4%. On a weekly basis, price growth has been negative or at zero since mid-July.

Nabiullina has said the key rate can reach its nominal equilibrium level of 6.5-7% once inflation is stable at 4% for one to two years. Households’ inflation expectations for a year-ahead, which the central bank calls a “pillar” of rate decisions, fell to 9.5% in August.

“A 50 basis-point move this time is a reflection that the central bank feels more comfortable that inflation pressures are subdued and that household expectations are easing too,” Liza Ermolenko, an economist at Barclays Capital in London, said before the announcement. Bloomberg

More From LiveMint

image beaconimage beaconimage beacon