Russia Central Bank Keeps Rates On Hold

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Russia’s central bank left its key interest rates unchanged, on Friday, as inflation exceeded the target largely due to one-off pro-inflationary factors.

The Board of Directors, led by Governor Elvira Nabiullina decided to retain the benchmark rate at 4.25 percent.

The bank had reduced the rate by 25 basis points in July and 100 basis points in June.

“Given the high heterogeneity of current economic and price movement trends, the Bank of Russia will assess the subsequent developments and the existence of a potential for additional key rate reduction,” the bank said.

Although inflation is expected to lie within the range of 4.6 percent – 4.9 percent at the end of 2020, disinflationary risks do not prevail in 2021 as much as before, the bank said.

According to Bank of Russia’s forecast, annual inflation will reach 3.5-4.0 percent in 2021 and will stabilize close to 4 percent later on.

With headline inflation likely to remain high into 2021, this suggests that there is much less scope for further interest rate cuts, Liam Peach, an economist at Capital Economics, said.

The central bank forecast the economy to contract around 4 percent this year. In spring 2021, the Russian economy is forecast to resume its sustainable growth as the coronavirus situation returns to normal. Accommodative monetary policy will continue to support the economy throughout the next year, the bank added.

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