Russia Cuts Rate On Risk Of Inflation Overshoot, Signals More Ahead
September 15 2017 - 5:21AM
RTTF2
Russia central bank cut its key interest rate on Friday by half
a percentage point, citing the risk of inflation overshooting the 4
percent target over the medium term, and signaled that further
reductions are possible over the next two quarters.
The Board of Directors decided to cut the key rate by 50 basis
points to 8.50 percent, the Bank of Russia said in a statement. The
reduction was in line with economists' expectations.
Previously, the bank had slashed the rate by 25 basis points
each in June and March, and by 50 basis points in April.
Policymakers noted that inflation is close to 4 percent, while
the economy keeps growing. While inflation expectations have
resumed their decline, they have not yet anchored at a low level,
the bank said.
"Medium-term risks of inflation overshooting 4 percent dominate
over the risk of its steady downward deviation from the target,"
the bank said.
"In order to maintain inflation close to the 4 percent, the Bank
of Russia will continue to conduct moderately tight monetary
policy."
The bank "deems it possible to cut the key rate further" during
the next two quarters.
Inflation eased to 3.3 percent in August amid declines in price
growth in both food and non-food groups.
Going forward, the bank expects inflation to deviate from the 4
percent target both to the upside and to the downside and hence, it
is keen on make inflation expectations less sensitive to price
movements.
Citing the positive trend set by the second quarter growth
figures, the central bank revised up this year's growth forecast to
1.7-2.2 percent.
The bank still assess that the economy is close to its potential
and expects growth to be constrained by insufficient production
capacity. Further, the possible skilled labor shortages affecting
certain segments of the labor market.
"We think the large amount of spare capacity in the economy will
continue to keep a lid on price pressures," Capital Economics
economist William Jackson said.
"And we expect the headline rate to remain below inflation
target over our forecast horizon," the economist said.
Capital Economics still expects that the policy rate will be
lowered to 6.00 percent by the end of 2018, which is more easing
than the markets are currently pricing in, Jackson added.
The next policy session is scheduled for October 27.
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