By Andrey Ostroukh and Gabrielle Tétrault-Farber
MOSCOW, July 24 – Russia’s central bank cut the key interest rate to a record low of 4.25% on Friday and said more cuts were possible, given low inflation and a shrinking economy.
Russia has cut rates four times in 2020 in an attempt to support an economy pummelled by the new coronavirus and related lockdowns, as well as by lower prices for oil, Russia’s key export.
Governor Elvira Nabiullina, presenting the rate cut which matched the forecasts of analysts in a Reuters poll, said there was still scope for lower rates. She added that the bank would need to assess the impact of previous rate cuts.
“If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings,” the central bank said in a statement.
The central bank also revised the rate range it considers to be neutral from a monetary policy point of view to 5-6% from 6-7%, sending a signal to investors in Russian bonds that their yields will fall.
The bank also revised its economic forecasts.
After gross domestic product shrank by 9-10% in the second quarter, the central bank now expects the economy to contract by 4.5-5.5% this year before returning to growth in 2021. The central bank had previously forecast a GDP contraction of 4-6% this year.
Inflation, the central bank’s key area of responsibility, is expected to end this year at 3.7-4.2% in 2020, stabilising near its 4% target in 2021 and 2022.
Market experts, many of whom had expected a 50-basis-point cut on Friday, now say the central bank will continue lowering rates later this year.
Russia’s largest lender Sberbank said it expects the central bank to cut the key rate by another 25 basis points to 4% at the next board meeting on Sept. 18.
Analysts from BNP Paribas said they expected two more 25-basis-point cuts this year as Friday’s decision “maintained a dovish bias.”
(Additional reporting by Elena Fabrichnaya, Katya Golubkova, Tatiana Voronova, Anastasia Lyrchikova, Gleb Stolyarov and Alexander Marrow; Editing by Toby Chopra)