Russia: Bank Rossii lowers key rate to 9.00%
June 16, 2017
Russia’s Central Bank (CBR) cut rates at a third consecutive meeting on 16 June, lowering the key rate from 9.25% to 9.00%. The move surprised market analysts who had expected a bolder 50 basis point cut.
Inflation has been falling and moving toward the 4.0% inflation target in recent months (April and May: 4.1%) on the back of the Bank’s tight monetary policy and a stronger ruble. At the same time, while the economic recovery is broadening and the Bank upgraded its GDP growth forecast for this year to 1.3%–1.8% (previously: 1.0%–1.5%), price pressures are expected to remain contained due to still-weak domestic demand. This situation prompted policy makers to make a downward adjustment to interest rates.
The Bank’s forward guidance in its accompanying statement sounded more cautious. While the CBR pointed out that risks to the inflation outlook in the short-term are limited, the list of potential mid-term inflation risks was more extensive than in the previous months and included uncertainty in the oil market, a recovery in consumer demand, labor force shortages and possible tax hikes. The Central Bank will hold its next monetary policy meeting on 28 July.