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Russia Unexpectedly Cuts Interest Rates For The First Time In Seven Months

Friday, March 24, 2017 5:41
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(Before It's News)

The Russian Central Bank surprised markets when it unexpectedly cut interest rates by 25 bps to 9.75% (30 economists expected no change, 8 predicted a 25 bps cut), its first rate cut in four meetings or 7 months, as inflation, which has dropped from a peak of 17% to just 4.6% last month, appears to be under control, while growth is returning to the oil-dominated economy driven by the steady price of oil.

In the statement after the decision, the central bank said the risk it would miss the 4% inflation target this year had “abated” with further rate cuts a possibility over in the third and fourth quarters, while boosting its 2017 GDP forecast to 1-1.5%:

“Bank of Russia admits the possibility of cutting the key rate gradually in coming 2Q-3Q” the bank said in a statement while noting that it still plans to keep monetary policy moderately tight as inflation risks have declined, but remain elevated. It also said the risk of missing 2017 inflation target of 4% have “slightly abated”

Quoted by the FT, Timothy Ash, at Bluebay Asset Management, who notes Russia has some of the highest real interest rates of the world’s major emerging markets said that with GDP growth expected to come in at a still moderate 1-1.5% this year, there is still “significant scope for rate cuts.”

“With no prospect for sanctions being removed this year, one might expect the CBR to try and help with the heavy lifting by giving a bump to the economy before the elections [in 2018],” said Mr Ash.

Curiously, despite the easing, the ruble strengthens 0.4% to 57.2175 per dollar after initially erasing gains as central bank cuts key rate; it stoodat a three-day high against the dollar after the decision. Meanwhile, Russian five-year bonds steady at 8.11% as the Micex Index of stocks declined modestly by 0.4%.


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