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Russian central bank trims key rate to 9 percent, pledges more cuts

The Russian central bank cut its key interest rate by 25 basis points on Friday, pledging more monetary policy easing this year amid a better economic outlook.

The central bank trimmed the key rate to 9.00 percent from 9.25 percent, in the third consecutive cut this year.

A Russian national flag flies above the headquarters of Bank Rossii, Russia's central bank, in Moscow.
Andrey Rudakov | Bloomberg | Getty Images
A Russian national flag flies above the headquarters of Bank Rossii, Russia's central bank, in Moscow.

"The Board notes that inflation is close to the target, inflation expectations keep declining, and economic activity is recovering," the central bank said in a statement.

Analysts had been split between predicting a rate cut of 25 or 50 basis points: Fifteen out of 23 analysts and economists polled by Reuters this week said they expected the central bank to cut the key rate to 8.75 percent.

"The Bank of Russia sees room for cutting the key rate in the second half of 2017. While making its decision hereinafter, the Bank of Russia will assess inflation risks, the inflation dynamics and economic developments against the forecast," the central bank said.

By the end of the year, the central bank is expected to bring the key rate to 8-8.25 percent, according to a Reuters poll.

The central bank's monetary policy chief Igor Dmitriev told Reuters this month that market expectations about rate cuts generally matched the bank's own view.

The central bank said on Friday a possible tax manoeuvre by the government and a recovery in consumer demand carried upside risks for inflation, strengthening the case for prudent easing.

Lower interest rates could support an economic recovery by making lending cheaper, while also depriving the rouble of support from carry trade operations where investors borrow dollars cheaply and buy into high-yielding rouble assets.

The rouble firmed briefly to 57.59 versus the dollar compared with a level of 57.7 seen shortly before the rate decision.

Also on Friday, the central bank increased its economic growth forecast to 1.3-1.8 percent in 2017 from 1.0-1.5 percent growth predicted earlier.

The market will now closely watch a news conference where the bank's governor, Elvira Nabiullina, will take questions from reporters from 1200 GMT.

Analysts have said the tone of Nabiullina's rhetoric is likely to be cautious to avoid boosting expectations about further monetary easing.

The central bank's next rate meeting is scheduled for July 28.