Russian central bank trims key rate to 7.5%, does not signal further cut

(This content was produced in Russia, where the law restricts coverage of Russian military operations in Ukraine)

MOSCOW (Reuters) – Russia’s central bank cut its key interest rate by 50 basis points to 7.5% on Friday as inflation slows and the economy needs cheaper lending to limit a slump, but did not repeat recent guidance that it would study the need for further cuts.

It was the fifth scheduled board meeting where the rate has been cut this year. In the immediate aftermath of Moscow’s despatch of armed forces into Ukraine on Feb. 24, the central bank had hiked its key rate to 20% from 9.5% in order to mitigate risks to financial stability.

The 50-basis-point cut was in line with a consensus forecasts of analysts polled by Reuters earlier this week.

The central bank omitted forward-looking rate guidance from the statement, saying that the inflation expectations of households and businesses remained elevated. This suggests the likelihood of another rate cut has declined.

“Moving forward, in its key rate decision-making the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic transformation processes, as well as risks posed by domestic and external conditions and the reaction of financial markets,” the bank said in a statement.

Inflation stood at 14.1% as of Sept. 9 and is on track to finish this year in a range of 11-13%, the central bank said. It reiterated its hope that inflation would slow to its 4% target in 2023.

High inflation dents living standards and has for years been one of Russians’ main concerns. However, the economy currently needs stimulation in the form of cheaper credit to address the negative effects of sweeping Western sanctions imposed in response to Russia’s intervention in Ukraine.

The central bank maintained its forecast for a 4-6% economic contraction this year but said the decline in gross domestic product may be closer to 4%. In late April, it had expected GDP to shrink 8-10%.

Central Bank Governor Elvira Nabiullina will shed more light on the bank’s forecasts and policy in a media briefing at 1200 GMT.   

The next rate-setting meeting is scheduled for Oct. 28.

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