Russia Delivers Biggest Rate Cut Since 2017, Signals More Easing
Russia Delivers Biggest Rate Cut in Two Years as Inflation Slows
(Bloomberg) --
The Bank of Russia sped up the pace of monetary easing with a rare 50 basis-point cut to the interest rate and said it is considering more reductions after inflation showed signs of dropping well below a 4% target.
The benchmark rate was cut to 6.5% from 7%, according to a statement published on Friday. The Bank of Russia lowered its end-of-year inflation forecast to 3.2%-3.7% and said disinflationary risks now exceed pro-inflationary risks.
Policy makers last opted for a 50 basis-point cut almost two years ago. Just under half of economists polled by Bloomberg correctly forecast the move, with most expecting a smaller reduction.
Russia has already cut rates three times this year, but central bank Governor Elvira Nabiullina turned more dovish last week when she indicated that more needed to be done to prevent a sustained period of low inflation. Sluggish growth and real rates among the highest in emerging markets mean the central bank has ample room to cut further.
“A new era of growth-supportive policies has begun,” said Elina Ribakova, deputy chief economist at the Institute of International Finance in Washington. “I would expect inflows into Russia’s bond market to pick up.”
Yields on ruble sovereign bonds maturing in 2027 were down 7 basis points to 6.48% on Friday, extending a rally since Nabiullina turned more dovish last week. The ruble traded 0.3% stronger against the dollar.
The bigger-than-expected cut echoes similar moves this week by policy makers in Turkey and Ukraine as central banks make the most of high real rates to take a stand against slowing global growth.
The Bank of Russia maintained its full-year growth forecast of 0.8%-1.3% and said that an acceleration in the third quarter was due to temporary factors. The global economic slowdown has reduced demand for Russia’s exports, the statement said.
What Our Economists Say:
“The easing cycle is going further and faster than expected. That should provide a kick to growth, though the central bank is only taking advantage of the policy space provided by slowing inflation.”
- Scott Johnson, economist, Bloomberg Economics
The central bank said it will “consider the necessity” of further rates cuts at one of its upcoming meetings, which typically means the next three. Economists are split about whether or not that implies another big reduction at the next meeting in December.
The Bank of Russia sees consumer-price growth at 3.5%-4% by the end of 2020. Inflation may go “slightly” below 3% in the first quarter of next year, according to the statement.
“They’ve cut the key rate drastically, they now have a month and a half to evaluate the impact,” Nordea analyst Tatiana Evdokimova said. “If they see that monthly inflation is accelerating, then they can take a pause.”
--With assistance from Zoya Shilova and Áine Quinn.
To contact the reporter on this story: 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
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