Russian central bank expected to cut rates for fifth time this year

The Central Bank of Russia is expected to cut its key interest rate today by 25 basis points to 6.25%.

russia central bank rate cut

Photo: Reuters

The Central Bank of Russia is expected to cut its key interest rate today by 25 basis points to 6.25%.

Russia’s central bankers have slashed rates five times this year as inflation has slipped below its 4% target and is on track to fall further.

The Russian economy has stalled this year amid flatlining investment and consumer demand. However, economic growth is expected to pick up in 2020 due to higher state spending and looser monetary policy. The World Bank expects the country’s GDP to expand by 1.2% this year–up from the 1.0% it projected in October–and at 1.6% in 2020.

While most factors are in favour of a rate cut, bankers are cautioning against a larger cut in a wait-and-see approach to fully accommodate the planned state investment projects.

Still, Russia’s ambitious national projects, which include billions of dollars to enhance business conditions, infrastructure, healthcare and ecology, are seen having only a limited effect on economic growth. At 6.25%, the key rate would be at the lower boundary of the 6-7% the central bank considers neutral from its point of view. Thus, expect the central bank to continue cutting rates if the promised economic boost does not come to fruition.

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