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Russian Rate Cut Is Possible Next Week, Nabiullina Says

Russian Rate Cut Is Possible Next Week, Nabiullina Says

(Bloomberg) --

Governor Elvira Nabiullina said it’s possible that Russia’s central bank will cut interest rates for the first time in a year at its next meeting on June 14.

“External conditions turned somewhat more volatile in recent weeks, and we will take into consideration all these factors, but we think that this option of a reduction is possible,” Nabiullina told Bloomberg TV on the eve of a self-imposed blackout week before the decision. Recent data “confirms that inflation is evolving tangibly better than we expected.”

The central bank remains cautious about the outlook for inflation expectations and is in no rush to undo the two surprise hikes from late last year or make “rapid moves,” Nabiullina said.

At an earlier panel session on Thursday at the St. Petersburg International Economic Forum, she said monetary easing could resume in the nearest future. Consumer price growth slowed for a second consecutive month in May, according to data released Thursday.

The comments are the strongest signal yet that Russia’s central bank is ready to resume monetary easing as inflation retreats from a spike earlier this year. The market was divided until recently about the direction of next week’s decision, but forecasts for easing are now in a majority.

Russian Rate Cut Is Possible Next Week, Nabiullina Says

“It would be stupid to expect the central bank to keep the rate unchanged after such a statement from Nabiullina,” said Roman Ermakov, the head of fixed income at Moscow-based Lanta Bank. “Something extraordinary would need to happen during the next week for the central bank to keep the rate unchanged.”

Twenty-one economists in a Bloomberg survey forecast a 25 basis-point cut to to 7.5% at next week’s meeting, and two expect no change. Derivatives traders have increased their wagers on lower rates in the coming months to the highest level in 15 months.

Russia’s 10-year bond yields extended declines, falling six basis points to 7.76%, the lowest since July.

What Our Economists Say:

“The central bank knows policy is tighter than the outlook justifies. It doesn’t regret those two preemptive rate hikes, but it’s likely to unwind them quickly, with a first move next week. We see 50 bps of easing this year.”

--Scott Johnson, economist, Bloomberg Economics.

Lowering borrowing costs won’t spur economic growth on its own and Russia also needs to implement reforms to achieve that goal, Nabiullina said on at Thursday’s panel session.

Annual inflation eased to 5.1% in May from 5.2% in April, in line with forecasts in a Bloomberg survey, the Federal Statistics Service said Thursday.

--With assistance from Zoya Shilova and Andrey Biryukov.

To contact the reporters on this story: Stephanie Flanders in London at flanders@bloomberg.net;Anna Andrianova in Moscow at aandrianova@bloomberg.net

To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Natasha Doff, Torrey Clark

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