June 10, 2019
By Andrey Ostroukh and Elena Fabrichnaya
MOSCOW (Reuters) – The Russian central bank is expected to cut interest rates on Friday, opening the door for a further easing cycle later this year amid slowing economic growth and inflation, a Reuters poll showed on Monday.
Twenty-nine analysts and economists who took part in the poll predicted that the central bank will cut the key rate to 7.50% at the upcoming board meeting. Three expected the rate to remain unchanged at 7.75%.
Expectations for a rate cut, which would be the first since March 2018, were bolstered last week by Governor Elvira Nabiullina, who said the board of directors was considering lowering rates, among other options.
Previously, the central bank signaled it was ready for a cut as early as in the second quarter, after inflation, its main remit, had peaked and was on track to slow to the 4% target within a year.
“The central bank of Russia will embark on monetary easing cycle this summer,” said Andrei Melaschenko, an economist at Renaissance Capital. “A limited inflation pace, stabilized inflationary expectations among households and limited consumer demand growth all speak for that.”
The bond market is already pricing in a cut in the key rate, the main gauge of the cost of lending in the economy.
Yields of 10-year OFZ treasury bonds fell to 7.70%, their lowest since August 2018. Investors tend to buy government bonds when they expect the central bank to lower rates as cuts drive yields of bonds lower and, simultaneously, push their prices up.
The next rate cut is likely to take place at one of the board meetings in the second half of 2019, according to a Reuters monthly economic poll carried out in late May.
Analysts who predicted the on-hold decision for this Friday cited lingering risks and uncertainties on the global market.
“Taking into account the trade row between the United States and China, a rate cut could be premature as, if develops in a negative way, it could boost capital outflow from the Russian market and add pressure on financial stability,” said Vladimir Tikhomirov, chief economist at BCS Brokerage.
The central bank will announce its rate decision at 1030 GMT on Friday, and Nabiullina will shed more light on the bank’s decision and outlook at a media conference scheduled for 1200 GMT.
(Writing by Andrey Ostroukh, editing by Larry King)