The Bank of Russia cut its key interest rate in its monetary policy meeting held on Friday, citing steady ongoing inflation as the bedrock cause for the move. The central bank slashed the policy rate by 0.5 percentage point to 10.5 percent, making a close call.
Further, the bank also flagged another possible rate cut, based on estimates for inflation risks. Inflation came in at 7.3 percent for a third consecutive month in May, according to the central bank.
“Slowing inflation allows certain reliance on sustainable inflation reduction to less than 5 percent in May 2017 and the 4 percent target in late 2017, taking into account the decision just made and the retention moderately tight monetary policy,” the central bank said in its statement post the rate cut decision.
Liza Ermolenko of Capital Economics', however, said earlier this week that the big decline in Russian inflation had already happened and that it would edge up over the coming months, reports confirmed.
However, this was the first rate cut since July as the focus shifted away from risks to inflation after witnessing a rally in the Russian ruble amid stabilizing oil prices.
“The Bank of Russia will consider the possibility of a further rate cut based on estimates for inflation risks and the extent to which a decline in inflation aligns with the forecast trajectory,” the CB added.
Meanwhile, the consumer price index is expected to end the year at 5.5 percent from a year ago period if crude oil maintains its current level, according to a statement by Maxim Oreshkin, Deputy Finance Minister of Russia.
Analysts review the rate cut as normal, citing the previous 11 percent interest rate was not in tandem with the current rate of inflation.
The material has been provided by InstaForex Company – www.instaforex.com