- Maxim Shemetov/Reuters
The Central Bank of Russia just reversed course and unexpectedly cut rates to its lowest level since 2014 as inflation continues to fall at a faster pace than it expects.
The bank lowered its one-week repo rate by 25 basis points to 9.75% from 10.00%, and suggested that more cuts could be coming this year.
This was a reversal from the bank’s earlier positioning. Back at its February meeting, the bank said it saw less room for rate cuts going forward amid rising inflation risks.
Most analysts surveyed had been expecting the CBR to hold steady, according to the Bloomberg consensus.
During the press conference after the decision announcement, central bank governor Elvira Nabiullina suggested that Friday’s cut was not a one-off, but that further monetary easing will be gradual.
“In other words, although the easing cycle has started, Russia’s central bank is not yet on the brink of lowering interest rates dramatically,” William Jackson, Senior Emerging Markets Economist at Capital Economics, wrote.
“For our part, we think the large output gap will mean that both core and headline inflation will fall further, even as the economy recovers,” he added.”This in turn should allow the central bank to undertake a lengthy easing cycle. We expect the one-week repo rate to be lowered to 8.00% this year and 6.00% in 2018.”
Moreover, in the accompanying policy statement, the bank wrote that the inflation slowdown is “overshooting” its forecast and that economic activity continues to recover. “While assessing evolving inflation dynamics and economic developments against the forecast, the Bank of Russia admits the possibility of cutting the key rate gradually in coming Q2-Q3,” it added.
Russia’s consumer price index (CPI) rose by 4.6% year-over-year in February, which marked the lowest rate since June 2012. It came in below expectations of a 4.7% uptick and below January’s 5.0% increase.
At the same time, last month saw a slew of less-than-ideal data. Retail sales and construction output tumbled again in February, by 2.6% and 4.5%, respectively, while industrial production slumped by 2.7% after growing by 2.3% in January. (For what it’s worth, retail sales have fallen in 26 consecutive months – a record.)
The Russian ruble ticked up after the announcement, and is higher by 0.6% at 57.0790 per dollar as of 8:15 a.m. ET.
- Markets Insider
This post was updated after the central bank head’s press conference.