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Russia's central bank seen cutting rate to 7.25% on Friday - Reuters poll

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Russia's central bank seen cutting rate to 7.25% on Friday - Reuters poll
FILE PHOTO: A view shows the Russia's Central Bank headquarters in Moscow, Russia February 22, 2018. REUTERS/Sergei Karpukhin   -   Copyright  SERGEI KARPUKHIN(Reuters)
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By Andrey Ostroukh and Elena Fabrichnaya

MOSCOW (Reuters) – The Russian central bank is expected to cut its key interest rate on Friday after its policymakers indicated that rate cuts were looming amid slowing inflation and sluggish economic growth, a Reuters poll showed on Monday.

The 23 analysts and economists who took part in the poll on July 22 unanimously predicted that the central bank will lower the key rate to 7.25% at the upcoming rate-setting meeting.

“We think the central bank will lower the key rate by 25 basis points at the following meeting,” said Yaroslav Lissovolik, head of Sberbank Investment Research.

Central Bank Governor Elvira Nabiullina boosted expectations of a rate cut this month when she said in an interview with Reuters that the bank would like to complete the rate-cutting cycle by mid-2020, trimming the rate in small steps.

At the previous rate meeting, when the bank lowered the rate for the first time since March 2018, it said one or two rate cuts were possible by the end of this year.

A slowdown in consumer inflation to 4.7% in June from 5.1% in May, closer to the central bank’s target of 4%, cemented expectations of a rate cut on July 26.

A cut to 7.25% would bring the rate to levels seen before a rate hike in September and, in theory, should support economic activity by making savings less attractive, while sending the cost of lending lower.

Nordea Bank analysts said the currency market reaction to such a rate cut would be minimal.

Expectations of a deeper rate cut were dissolved last week by the bank’s head of monetary policy, Alexei Zabotkin, who said a rate cut of 50 basis points was unlikely because the bank prefers smaller shifts in its policy.

“The tail risk of 50 bps cut that we discussed over the past two weeks was almost ruled out on Thursday, 18 July, in the comments by the head of the monetary policy department Zabotkin,” said Alexei Pogorelov, chief economist at Credit Suisse in London.

The rate decision on Friday is due at 1030 GMT. Unlike the previous rate decision in June or the next one due in September, this time it will not be accompanied by Nabiullina’s media conference.

“According to our forecasts, the next rate cut by 25 basis points will take place in September,” Lissovolik from Sberbank said.

(Writing by Andrey Ostroukh, editing by Larry King)

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