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Russia seen cutting rate in 2019 amid stable inflation outlook - Reuters poll

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Russia seen cutting rate in 2019 amid stable inflation outlook - Reuters poll
FILE PHOTO: A Russian flag flies over Russian Central Bank headquarters in Moscow, Russia December 3, 2018. REUTERS/Maxim Shemetov/File Photo   -   Copyright  Maxim Shemetov(Reuters)
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By Andrey Ostroukh

MOSCOW (Reuters) – The Russian central bank is likely to cut interest rates near the end of this year after inflationary expectations stabilised over the past month, a Reuters monthly poll of 19 analysts and economists showed on Friday.

Inflation in Russia has been rising this year, driven by a planned increase to value-added tax, higher petrol prices and the rouble’s drop in value in 2018.

The poll showed that full-year inflation forecasts have not changed over the past month. Consumer prices are still expected to rise 4.8 percent in 2019, exceeding the central bank’s 4.0 percent target, according to the poll.

The central bank, which its key interest rate at 7.75 percent in March, is now expected to cut the rate to 7.50 percent in the fourth quarter. The median forecast last month envisaged no rate cuts this year.

“An expected inflation slowdown from the second half of 2019 will create conditions for the central bank to cut the key rate to a neutral level of 6.5 to 7.0 percent,” said Alexei Kuznetsov, head of economic research at Eurasian Development Bank, without saying when the rate cut would occur.

Economic growth is expected to pick up in the medium term, after the rate cut, as the effect of a higher tax burden fades, Kuznetsov said.

The forecast for gross domestic product growth in 2019 remained unchanged in the March poll compared with February poll, at 1.4 percent. In 2020, GDP growth is seen picking up to 1.7 percent.

The rouble is projected to weaken slightly against both the dollar and the euro over the next year.

In 12 months, the rouble is seen at 66.25 versus the dollar and at 77.50 versus the euro. The previous poll foresaw 65.50 and 74.40, respectively.

On Friday, the rouble traded at 64.75 against the dollar and 72.73 against the euro, supported by growing interest in emerging-market assets.

(Reporting by Andrey Ostroukh, editing by Larry King)

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