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Lower interest rates are a 'definite trend' in Russia, says major Moscow bank

Key Points
  • All but one of the 25 analysts and economists polled by Reuters expect the Russian central bank to lower its key rate by 25 basis points to 7% on Friday.
  • "We shall see, but definite trend is to lower key rate in Russia," predicted Andrey Kostin, chairman of Moscow-based bank VTB ahead of Friday's rate decision.
  • On the impact of international sanctions facing Russia, Kostin said VTB has learned to raise capital domestically which has helped "in times of crises."
VIDEO2:0302:03
Interest rate cut will help 'substantially' in Russia, says banker

Interest rates in many economies are heading south — that's no exception in Russia where the central bank is widely expected to ease monetary policy on Friday, for the third time this year.

All but one of the 25 analysts and economists polled by Reuters expect the Russian central bank to lower its key rate by 25 basis points to 7% at Friday's meeting. The Bank of Russia previously eased in June and July, and said more cuts were likely amid slowing inflation.

"There's quite wide expectations that rate might be cut again by a quarter of a percent on Friday. We shall see, but definite trend is to lower key rate in Russia," Andrey Kostin, chairman of Moscow-based bank VTB, told CNBC's Tanvir Gill at the Eastern Economic Forum in Vladivostok, Russia.

Kostin said inflation in Russia is expected to be around 4%, but the key rate is currently 7.25% — much higher than that in major economies around the world. That means the central bank has room to ease monetary policy even more to support the economy, added Kostin.

VIDEO3:1303:13
China has been a 'lifeline' for Russia amid sanctions, expert says

With global economic growth slowing down at a time when the U.S.-China trade war looks set to prolong, central banks around the world have been slashing interest rates to boost economic activity.

Among advanced economies, the European Central Bank and Bank of Japan have indicated their willingness to ease monetary policies even more, while the U.S. Federal Reserve in July cut interest rates for the first time in a decade. Across emerging markets, central banks in South Korea, Thailand and Indonesia are among those that have eased this year.

Such an environment has resulted in more than $16 trillion in negative-yielding debt instruments globally.

Russia's economic challenges

In Russia's case, the economy is dealing with twin challenges: global uncertainties such as the trade war, as well as sanctions.

The country has for the last five years grappled with sanctions slapped by the U.S. and its allies over Russia's invasion of Crimea. Some of those sanctions include limiting Russian banks' access to international capital markets.

The sanctions "substantially changed our funding policy," Kostin said, explaining that his bank found it difficult to continue borrowing in U.S. dollar and euros in a big way.

"We learned how to collect money here in Russia and it helps in times of crises," he said.

However, Kostin said VTB "would like to be more active in international markets, we would like to have more cooperation with international banks."

"But we have what we have, and we have to accept (the reality), I'm afraid, for a long time," he added.