Russian Central Bank cuts key interest rate to 7.5% from 7.75%

Central Bank of Russia (CBR) today announced that it cut the policy rate to 7.5% from 7.75% as expected. With the initial reaction, the USD/RUB pair fell to its lowest level in nearly a month at 64.3564. Below are some key takeaways from the CBR's press release.

  • If the situation develops in line with the baseline forecast, CBR admits the possibility of further key rate reduction at one of the upcoming board of directors’ meetings.
  • Will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon
  • Sees transition to neutral monetary policy until mid-2020.
  • Mid-term inflation dynamics may be affected by fiscal policy parameters, including decisions on the use of the liquid part of the national wealth fund in excess of the threshold level set at 7% of GDP.
  • Leaves mostly unchanged its estimates of risks associated with wage movements, prices of individual food products, and possible changes in consumer behaviour.
  • Significant risks are posed by elevated and unanchored inflation expectations.
  • Effects of the VAT hike have fully materialised.
  • Lowered its GDP growth forecast for 2019 from 1.2-1.7% to 1.0-1.5%.
  • Subsequent years might see higher economic growth rates as national projects are implemented.

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