Russia's central bank cuts key interest rate to 7.5 percent

  • The central bank said it would also consider further cuts to the rate this year as annual inflation, which stood at 2.2 percent in January, was "sustainably low."
  • Friday's 25 basis point cut was in line with predictions from 18 of 20 analysts and economists polled by Reuters beforehand.
Bank of Russia Governor,Elvira Nabiullina
Andrey Rudakov | Bloomberg | Getty Images
Bank of Russia Governor,Elvira Nabiullina

Russia's central bank cut its key interest rate to 7.5 percent on Friday after lower inflation gave it scope to reduce lending costs ahead of a presidential election next month.

The central bank said it would also consider further cuts to the rate this year as annual inflation, which stood at 2.2 percent in January, was "sustainably low."

The bank cut its key rate six times last year as inflation, once stubbornly high and at double-digit levels, slipped below its target of 4 percent.

Friday's 25 basis point cut was in line with predictions from 18 of 20 analysts and economists polled by Reuters beforehand.

"Annual inflation remains sustainably low. Inflation expectations are diminishing progressively. Short-term pro-inflationary risks have abated.

Therefore the balance of inflationary and economic risks has shifted slightly towards the risks to economic growth," the central bank said in a statement.

"This year annual inflation is much less likely to exceed 4 percent. In this environment the Bank of Russia will continue to reduce the key rate and may complete the transition from moderately tight to neutral monetary policy in 2018."

The rouble firmed to 57.92 versus the dollar after the decision, compared to a rate of 58.11 shortly before.

Lower rates are beneficial for Russia as they spur economic growth by boosting consumer demand through cheaper lending.

That could please voters ahead of a presidential election on March 18 by making consumer credit and mortgages cheaper.

While incumbent Vladimir Putin is widely expected to be re-elected, some analysts say lower living standards could prompt voters to stay away from the polls in protest, frustrating the Kremlin which is keen to ensure a high turnout.

A decision by the United States to hold off imposing sanctions on Russian sovereign debt allowed the central bank to stick to its rate-cutting policy.

Elvira Nabiullina, the central bank's governor, said last week that the regulator might trim rates faster than previously thought as inflationary risks related to external factors had eased.

The next rate-setting meeting is scheduled for March 23.