Russian central bank cuts key rate by 1 pct point

15 Jun 2015 | Author: | No comments yet »

Bank of Russia Cuts Key Interest Rate to 11.5%.

(Bloomberg) — The Bank of Russia cut its key interest rate for the fourth time this year, delivering the smallest decrease since March to keep a lid on currency and inflation risks. Twenty-one of 35 economists in a Bloomberg survey predicted the move, with eight seeing a reduction of 150 basis points and five forecasting a 50 basis-point cut. The fact that it opted for a smaller cut shows its intentions to “be on a safer-side with policy easing”, said Dmitry Polevoy, chief economist at ING Bank in Moscow.

The moderate rate cut is seen as sign that the central bank would like to prevent further weakening in the ruble, which has been under daily pressure from the bank’s purchases of foreign currencies for the country’s international reserves. Still, after four rate cuts so far this year the key rate remains above its level of 10.5% in early December, before an emergency increase to 17% that helped stabilize the plummeting ruble. While Governor Elvira Nabiullina has said that inflation is “under control,” she’s argued against a faster rollback of last year’s emergency increase that brought the benchmark to 17 percent. The world’s largest energy exporter will have to endure tight monetary and fiscal policy for years as price growth and pressure on the budget leave little room for a looser stance, according to Finance Minister Anton Siluanov. If the average price of oil remains at $60 a barrel, however, gross domestic product would shrink by 1.2% next year. “The oil price at $60 is still a problem for the Russian central bank and we could expect more rate cuts to come to fade the effects of the falling oil price,” said Naeem Aslam, chief analyst at broker Avatrade.

The central bank’s comments on the substantial risks faced by the economy contrast with recent remarks by government officials, who said that the worst of the economic contraction is over. The monetary authority plans to boost holdings to $500 billion in the coming years, a goal it has defended as compatible with a free-floating exchange rate.

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