MOSCOW: Russia’s central bank trimmed its main lending rate and said there could now be gradual easing as inflation eases down to new post-Soviet lows. After holding the key rate at 10 per cent since September, the central bank cut it to 9.75 per cent, saying inflation was slowing down quicker than forecast.
It signalled small cuts could follow in the second and third quarters of the year. “We could have pauses, though we really see a trend towards easing, towards lowering the rate in the medium-term,” Central Bank Governor Elvira Nabiullina said. “But we will do that very carefully and smoothly.”
The bank is focused on bringing inflation to 4 per cent by the end of the year and has kept policy tight since 2014 despite a deep economic slump brought on by the collapse in global oil prices and Western sanctions over the Ukraine crisis. The decision to ease policy on Friday came despite the majority of analysts predicting in a Reuters poll the extremely cautious bank would hold rates. Nabiullina said at a news conference that further rate cuts could come at any board meeting.
While the central bank pointed to a slowdown in inflation from 5 per cent in January to 4.3 per cent in March, it expressed concerns about the inertia of inflation expectations and volatility on global markets. “To keep inflation close to the target level there could be a need to retain moderately tight monetary policy on the horizon of two to three years,” Nabiullina said. Capital Economics said in a research note it took Nabiullina’s rhetoric to mean the central bank was not yet on the brink of lowering interest rates dramatically. Previously, Nabiullina has said the key rate should exceed inflation by 2.5-3 percentage points. Given her bank’s 4 per cent inflation target, this suggests the key rate could be held above 6.5-7 per cent over the next few years.
— Reuters
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