By Andre Ostroch and Alexandre Maru
MOSCOW (Reuters) – Russia’s central bank cut its key interest rate by 50 basis points to 7.5% on Friday, suggesting the rate-cutting cycle may be nearing its end as inflation expectations rise and guidance on examining the need for future cuts is overlooked. .
The bank now expects consumer prices to rise by 11-13% in 2022, compared to the previous forecast of 12-15%, supporting the decision to cut and with the economy needing cheaper lending to curb the recession.
This was the fifth scheduled meeting of the board of directors and the sixth overall in which the main rate was lowered this year. Following Moscow’s dispatch of armed forces to Ukraine on February 24, the central bank raised the key interest rate to 20% from 9.5% in order to mitigate risks to financial stability.
“As we approach the end of the easing cycle, we accept that the next step, in addition to holding the rate, will be an increase,” Governor Elvira Nabiullina said at a press conference. “However, we also do not rule out an interest rate cut.”
Nabiullina said the bank had considered cutting 50 or 25 basis points as well as keeping the interest rate at 8 percent on Friday.
The 50 basis point cut is in line with consensus expectations of analysts polled by Reuters earlier this week.
The central bank omitted forward-looking price guidance from the statement, saying that inflation expectations for households and firms remained high.
“There is no direct indication in today’s press release. This is a clear indication that the rate-cutting cycle may be over,” said Evgeny Suvorov, CentroCreditBank Economist.
The central bank said that it will take into account the actual and projected inflation dynamics along with the risks posed by domestic and external conditions and the reaction of financial markets when making its next interest rate decision.
The ruble showed limited reaction to the price move, hovering near 60 against the dollar, but fell slightly as Nabiullina spoke.
Inflation was 14.1% as of September 9. The central bank has reiterated its hope that inflation will slow to 5-7% in 2023, and said that tighter monetary policy may be needed to raise inflation to its 4% target in 2024 if the Russian budget deficit. expands
“It cannot be ruled out that the central bank will start raising interest rates as early as the first half of next year,” CentroCreditBank’s Suvorov said.
High inflation affects living standards and for years has been one of the main concerns of Russians. However, the economy currently needs stimulus in the form of cheaper credit to address the negative effects of sanctions against Moscow on Ukraine.
The central bank maintained its forecast for an economic contraction of 4-6% this year, but said the drop in gross domestic product could be closer to 4%. In late April, it forecast GDP would shrink 8-10%.
The next pricing meeting is scheduled for October 28.