The Russian central bank lowered its key interest rate to 6.25% yesterday amid slowing inflation and said further rate reductions in the first half of 2020 looked possible but not imminent.
Yesterday’s rate cut was in line with market expectations and became the fifth in 2019. A Reuters poll this month predicted the central bank would trim the rate by 25 basis points, taking this year’s cumulative rate reduction to 150 basis points.
“We will consider the necessity of further key rate reductions in the first half of 2020,” said Elvira Nabiullina, the central bank governor, as she presented the rate move.
“We still see room for some reduction in the key rate, but in February, and at subsequent meetings, we will once again comprehensively assess the justification and timeliness of such a step, based on all the new data we will have by then.”
Unlike in the previous statement, when the central bank cut its key rate by 50 basis points, this time the bank dropped its wording that it would study the necessity of a rate cut at one of the next meetings.
“Our signal does not imply an inevitable rate cut in February, or in the first half of the year,” Nabiullina explained.
A further key rate cut will become possible only if our analysis confirms that this is needed to bring inflation back to the Bank of Russia’s 4% target, Nabiullina said.
The central bank, which targets inflation as the key indicator and is set to hold the next rate-setting meeting on February 7, expects inflation to end this year at 2.9-3.2% and to bottom at below 3% in the first quarter of 2020.
“In the second half of the year, inflation will be returning to around 4%,” Nabiullina said.
Friday’s cut brought the key rate closer to the lower boundary of the 6% to 7% range that the central bank considers neutral from a monetary policy point of view and has no immediate plans to change.
The pace of the central bank’s future rate cuts is likely to slow, said Tatiana Evdokimova, chief economist at Nordea Bank in Moscow, interpreting the bank’s message.
Nabiullina: Signalling further reduction.
