Bank of Russia Hints at October Rate Cut as Inflation Slows
Goldman Says Tumbling Inflation Is Becoming a Problem for Russia
(Bloomberg) --
The Bank of Russia signaled that it may push ahead with its fourth interest-rate cut in a row, as annual inflation slowed to the central bank’s target level of 4%.
The last time it met, the central bank said more easing was probable at one of its next meetings. On Friday First Deputy Governor Ksenia Yudaeva indicated that the balance of risks has now changed.
“Looking now, although there are a lot of one-off factors, we see inflation easing,” First Deputy Governor Ksenia Yudaeva told reporters in Moscow on Friday. “Overall risks are either balanced or declining. Financial markets risks are also under control.”
After 75 basis points of easing this year, Russia still has one of the highest real interest rates in emerging markets, and elevated borrowing costs are taking their toll on growth. Economists at Goldman Sachs Group Inc. warned this week that the inflation trajectory implies the central bank needs to cut rates more aggressively.
Yields on Russian 10-year government bonds headed for their biggest drop in a month on Friday, in part due to a rally in emerging markets. The ruble strengthened for a third day.
RUSSIA REACT: Sliding Inflation Keeps October Live for Rate Cut
Annual inflation slowed for a sixth straight month in September, Russia’s state statistics service reported on Friday. The Economy Ministry, which is pushing for deeper rate cuts, estimates that inflation could decelerate to below 3% next year, well below a central bank forecast that it will stay near the current level.
“The central bank had left the door open for further cuts, but allowed itself some freedom to choose the timing,” Tatiana Orlova, an economist at Emerginomics in London. “The CPI data published today has removed that freedom. It would look very odd indeed if the central bank didn’t cut its policy rate at the October meeting.”
The central bank needs clarity on budget spending plans for the next year in order to make its decision on future rate cuts, Yudaeva said earlier on Friday. A likely jump in spending at the end of 2019 will feed into next year’s inflation numbers, she said.
Orlova is now one of just four economists in a Bloomberg survey who are forecasting a 25 basis-point cut, with the other 14 expecting no change. Most were polled before Friday’s inflation data and Yudaeva’s comments.
“We aren’t changing our forecast yet,” said Sergey Konygin, an economist at Gazprombank in Moscow. “If the inflation trend continues, we think they will cut in December.”
--With assistance from Zoya Shilova.
To contact the reporters on this story: Andrey Biryukov in Moscow at abiryukov5@bloomberg.net;Anya Andrianova in Moscow at aandrianova@bloomberg.net
To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Natasha Doff, Alex Nicholson
©2019 Bloomberg L.P.