Business / Financial Markets

Bank of Russia cuts rate for third time as inflation slows

Bloomberg

The Bank of Russia pushed through its third consecutive interest-rate cut as inflation dropped closer to a 4 percent target.

The benchmark rate was cut to 7 percent from 7.25 percent, according to a statement published on Friday. The move to the lowest level since March 2014 was forecast by 33 economists out of 35 in a Bloomberg survey, with one analyst forecasting a bigger cut and one expecting no change.

Bank of Russia Gov. Elvira Nabiullina was to hold a news conference at 3 p.m, in Moscow.

The central bank renewed its easing cycle in June after a couple of rate hikes last year to stem risks to inflation from a tax rise. Recent ruble weakness and proposals for an increase in spending may put the brakes on more easing going forward.

Inflation is decelerating faster than expected this year, aided by an early harvest and weak consumer demand.

Economy Minister Maxim Oreshkin has called for more easing to stimulate growth, which slipped to 0.7 percent in the first half. He has warned inflation could drop as low as 3 percent at the beginning of 2020.

The government plans to accelerate spending on infrastructure projects by the end of this year, which could spur inflation. An additional proposal to spend the liquid part of the country’s national wealth fund has drawn warnings from central bank.

The ruble has weakened more than 4 percent since the last rate decision on July 26. Further weakening may stall easing before the end of the year.

This rate cut was already priced in by bond investors and Russia’s still relatively high real interest rate means it won’t significantly diminish the appeal of ruble bonds.

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