(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 central bank last opted for a 50 basis-point cut almost two years ago. Eighteen economists out of 40 in a Bloomberg survey correctly forecast the move, while 22 expected a smaller cut.
“Disinflationary risks exceed pro-inflationary risks over the short-term horizon,” the central bank said. “The Bank of Russia will consider the necessity of further key rate reduction at one of the upcoming Board of Directors’ meetings.”
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. The bigger-than-expected cut echoes similar moves this week by central banks in Turkey and Ukraine.
The Bank of Russia lowered its end-of-year inflation forecast to 3.2%-3.7% from 4%-4.5% and said that it 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.
- Real interest rates among the highest in emerging markets and low growth means that Russia still has ample room to cut interest rates.
- Analysts at Goldman Sachs Group Inc (NYSE:GS). and Sberbank CIB forecast this week that the central bank will need to cut by another 50 basis points in December to contain the slow down in inflation.
- The central bank’s dovish turn has added fuel to a bond rally in Russia this year that has already handed investors a 27% return.
