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Russia says it will cut rates in coming months

Russia's central bank kept its main interest rate unchanged on Friday morning, but signaled that it would cut rates in the coming months with an expected slowdown in inflation rates.

Policymakers at the bank kept the main lending rate on hold at 11 percent Friday morning. This tallied with a Reuters poll of economists on Monday. However, a sizable minority in the poll had predicted a rate cut of 50 basis points.

This sizable minority is likely to increase with the bank highlighting that it would make a move in the near future. It said Friday that it would be guided by any alterations in the balance between a cooling economy and consumer price growth.

"As inflation slows down in line with the forecast, the Bank of Russia will continue with a downward revision of its key rate, at one of its forthcoming Board of Directors meetings," it said in a statement Friday morning.

It credited "elevated inflation expectations" for its decision to keep rates unchanged on Friday, but forecasts for these rates to begin to slow.

People walk past a board showing currency exchange rates in Moscow.
Maxim Zmeyev | Reuters
People walk past a board showing currency exchange rates in Moscow.

"The slack domestic demand and the moderately tight monetary conditions will drag down annual inflation in 2016-2017," it said.

"A slowdown in the annual consumer price growth will create prerequisites for decrease in inflation expectations. In early 2016, annual inflation is expected to decline considerably due to, among other factors, its high value in early 2015."

The bank forecast annual consumer price growth to be under 7 percent in October 2016, on track to reach the 4 percent target in 2017.

The central bank faces a dilemma because inflation stays high while the economy remains stuck in a rut.

Russia annexed the southern Ukrainian area of Crimea in March 2014 and, as a result, has faced tough economic sanctions from Western nations. These sanctions have hit the country's economy hard, along with a dramatic fall in the price of oil which Russia remains heavily reliant on for revenues.

The dollar depreciated slightly against the Russian ruble after the rate decision before paring losses. The Russian MICEX index was trading higher by 0.34 percent.

—Reuters contributed to this report.