Russia Cuts Rate By 100 Bps To Record Low

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Russia’s central bank lowered its key rate by 100 basis points, as widely expected, citing weak economic activity and more profound disinflationary pressures due to the coronavirus containment measures.

The Board of Directors, led by Governor Elvira Nabiullina, decided to reduce the benchmark rate to a record low 4.50 percent from 5.50 percent. The outcome of the meeting came in line with expectations.

The bank had reduced the rate by 50 basis points in April.

According to central bank estimate, the contraction of the second quarter GDP could prove more sizeable than expected. GDP is forecast to shrink 4-6 percent in 2020 and the recovery is expected to continue in 2021-22.

Disinflationary factors have been more profound than expected due to a longer duration of restrictive measures in Russia and across the world, the bank said in a statement.

The bank sees a risk that inflation might significantly deviate downwards from the 4 percent target in 2021.

Disinflationary risks are chiefly connected with uncertainty as to further developments in the coronavirus pandemic, the scale of possible measures to fight it and their impact on economic activity, as well as the speed at which global and domestic economies recover from pandemic, the bank noted.

The central bank said it will consider the necessity of further key rate reduction at its upcoming meetings.


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