Central Bank of Russia cuts key interest rate, likely to cut further in 2017

Central Bank of Russia (CBR) lowered its key rate by 50 bp to 10 percent at its meeting today, broadly in line with market expectations. The central bank justified its decision following a slowdown in the domestic inflation, declining inflation expectations and unstable economic activity.

Pressure builds on the central bank for more monetary easing, but analysts think the central bank will continue its "gradual rate cut strategy" in order to stabilize the rate of inflation to 4 percent by 2017 (it currently stands at 6.9 percent, as of August).

For the trend towards sustainable decline in inflation to strengthen, according to the Bank of Russia’s estimates, the current value of the key rate needs to be maintained till end-2016 with its further possible cuts in 2017 Q1-Q2. CBR expects the annual consumer price growth will stand at 4.5 percent in September 2017 and will then go down to the 4 percent target in late 2017.

When making its key rate decisions in the coming months, the Bank of Russia will assess inflation risks alongside economy and inflation dynamics’ consistence with the baseline forecast. The Bank of Russia Board of Directors will hold its next rate review meeting on 28 October 2016. RUB met further selling pressure after the Russian central bank (CBR) lowered its key rate.