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Russia seen cutting key rate by 100 bps to 10% on Friday- Reuters poll
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(Reuters) – The Russian central bank is expected to cut its key interest rate by 100 basis points to 10% on Friday as it tries to make lending more affordable amid sluggish consumer demand and a pause in inflation, a Reuters poll suggested on Monday.
(Reuters) – The Russian central bank is expected to cut its key interest rate by 100 basis points to 10% on Friday as it tries to make lending more affordable amid sluggish consumer demand and a pause in inflation, a Reuters poll suggested on Monday.
The bank has been gradually reversing an emergency rate hike to 20% in late February that was triggered by Russia’s Feb. 24 move to send tens of thousands of troops into Ukraine and the imposition of Western sanctions in response.
Since then, the central bank slashed its key rate three times, each time by 300 basis points and said after an off-schedule meeting in May it held open the prospect of a rate cut at its upcoming meetings.
Seventeen of 26 analysts and economists polled by Reuters predicted that Russia will cut the key rate by 100 basis points on Friday.
“The central bank will act more actively, trying to stimulate the economy to the extent possible,” said analysts at MKB Investments.
Russia’s domestic bond market has already priced in the rate cut. Yields on 10-year OFZ treasury bonds fell to 9% on Monday, moving inversely with their prices, from around 9.5% seen after the latest rate cut on May 26.
Inflation, the central bank’s main area of responsibility, gives the room for rate cuts, while the economy heads for recession.
Russia’s annual inflation slowed to 17.35% in the week to May 27 from 17.51% the week before, the latest data showed. That is still far above the central bank’s 4% target, but prices were steady over that week, following a modest decline the week before.
Among those who saw a different outcome than a 100 basis point cut, two economists predicted no rate change, one forecast a cut to 10.50% and one predicted a 75-basis-point cut.
“The central bank has lowered the rate enough and can take a pause,” said Natalia Orlova, chief economist at Alfa Bank, one of those predicting no rate change. She said continuous rate cuts could backfire by making companies and households wait for even lower rates instead of taking loans now.
Five of the polled economists forecast rates would return to single digits, with three looking for a cut to 9.5% and two predicting a cut to 9%.
(Reporting by Reuters; Editing by Tomasz Janowski)
Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates in an economy to achieve macroeconomic objectives such as controlling inflation and promoting economic growth.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are influenced by central bank policies and can affect consumer spending and investment.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
Economic growth is the increase in the production of goods and services in an economy over time, usually measured by the rise in Gross Domestic Product (GDP).
Financial markets are platforms where buyers and sellers engage in the trading of assets such as stocks, bonds, currencies, and derivatives. They play a crucial role in the economy by facilitating capital allocation.
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