Russian Central Bank cuts rate by a quarter percent

Inflationary risks remain for Russia, a top oil and gas exporter, even as expectations for economic recovery improve, the country’s central bank said.

Russia's Central Bank cuts rate for the first time since September, pointing to only modest growth expectations for the next two years. Photo by DyMax/Shutterstock
Russia’s Central Bank cuts rate for the first time since September, pointing to only modest growth expectations for the next two years. Photo by DyMax/Shutterstock

The Russian Central Bank lowered its key lending rate by a quarter percent to 9.75 percent per year, the first cut since September. In a statement justifying the move, the bank’s board of directors said inflationary expectations are lower, though recovery is emerging.

“Inflation risks have slightly dropped but remain elevated,” the directors said.
Central Bank Gov. Elvira Nabiullina said last month the Russian economy stands to exhibit growth this year. The number of economic sectors expected to expand this year is not much greater than those in contraction, but losers are outnumbered. Much of the strength depends on the price of crude oil, however.

The economy will be on the positive side of growth, she said, provided oil stays above $40 per barrel. The price for Brent crude oil, the global benchmark, was near $51 per barrel in early Friday trading. That’s a gain from the previous session, but off this year’s peak by about 9 percent.

The bank said Friday it would continue to asses inflation and economic developments, noting its possible that more rate cuts would come in the second or third quarter.

“The Bank of Russia takes into consideration the oil market uncertainty and keeps pursuing a conservative approach to the forecast, which assumes an oil price reduction to $40 per barrel by the end of 2017 and its further staying near this level,” it stated.

After lingering in recession last year, the bank said growth would be modest with an expansion in gross domestic product of between 1 percent and 1.5 percent this year and between 1 percent and 2 percent through 2019.

In the labor sector, the bank said unemployment in Russia has remained persistently low.

“The labor market is adapting to the new economic conditions with occasional signs of labor shortages in certain segments,” the bank stated. “Recovery is becoming more even across the regions.”

By Daniel J. Graeber