Russia Cuts Key Rate; Signals Additional Easing

Russia's central bank lowered its key interest rate for the sixth consecutive meeting and signaled more easing to counter the slowdown in inflation.

The Board of Directors, led by Governor Elvira Nabiullina, decided to cut the key rate by 25 basis points to 6.00 percent, the Bank of Russia said in a statement on Friday. The bank had reduced its rate by a quarter-point in December.

Policymakers said inflation slowdown is overshooting the forecast. Disinflationary risks still exceed pro-inflationary risks over the short-term horizon, the bank said.

Annual inflation is expected to come in at 3.5-4.0 percent in 2020 and to remain close to 4 percent further on.

"If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate reduction at its upcoming meetings," the bank said.

The bank said it will assess the effect of the adopted key rate decisions on monetary conditions and inflation movements.

With inflation likely to remain well below the central bank's 4 percent target, interest rates will be lowered by an additional 50 basis point in the first half of this year, Jason Tuvey, an economist at Capital Economics, said.

Economic activity continued to be constrained by weakening external demand for Russian exports on the back of a global economic slowdown.

Nonetheless, the bank has left its growth outlook unchanged. The GDP growth rate is forecast to gradually increase from 1.5-2.0 percent in 2020 to 2-3 percent in 2022.

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