Bank of Russia cuts key rate by 25 bp to 7.5% – regulator

TASS Russian News Agency | Jun 14, 2019 at 12:37 PM

MOSCOW, June 14. /TASS/. Bank of Russia has cut its key rate by 25 bp to 7.5% per annum, for the first time since March 2018, the regulator said in a press release following the board of directors meeting.

"On 14 June 2019, the Bank of Russia Board of Directors decided to cut the key rate by 25 bp to 7.50% per annum. Annual inflation slowdown is continuing. In May, households’ inflation expectations and business price expectations did not materially change and remain elevated. Economic growth in the first half of 2019 is lower than the Bank of Russia’s expectations. Short-term pro-inflationary risks have abated compared to March," the regulator said.

The regulator said it admits the possibility of further key rate reduction at one of the upcoming Board of Directors’ meetings and a transition to neutral monetary policy until mid-2020.

In its key rate decision-making, the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets, according to the press release.

Inflation dynamics

The Bank of Russia has lowered its end-of-year annual inflation forecast for 2019 from 4.7-5.2% to 4.2-4.7%.

"The revised forecast takes into account the completion of the VAT increase pass-through to prices (including the influence of secondary effects) and the preservation of relatively favourable external conditions and moderate dynamics of domestic demand. Moving on, according to the Bank of Russia’s forecast, annual inflation will stay close to 4%," the regulator said.

According to the Bank of Russia, annual consumer price growth rate declined in May to 5.1% (from 5.2% in April 2019) and reached an estimated 5.0% as of 10 June.

The regulator reiterated that in May, households’ inflation expectations and business price expectations did not materially change and remain elevated.

GDP

The Bank of Russia also lowered its GDP growth forecast for 2019 from 1.2-1.7% to 1.0-1.5%. But it admits the possibility of higher economic growth rates in the coming years as national projects are implemented.

The regulator noted that the growth in the first half of 2019 is lower than the Bank of Russia’s expectations.

"In January-April, the annual industrial production growth rate remained close to the readings of 2018 Q4. Export growth rates have declined amid weakening external demand. Investment activity remains muted. Annual retail sales growth rate has been slowing down since February on the back of moderate dynamics of household income. Consumer demand and labor market conditions create no excessive inflationary pressure," the regulator said.

The Bank of Russia’s Board of Directors is to hold its next meeting on key rate on July 26.