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Financial News: Russian CB To Trim Rates Again This Year:

Russian CB To Trim Rates Again This Year: Capital Economics

05/01/2017 - 10:27:00 (RTTNews)

(RTTNews) - Russian central bank is likely to cut its key interest rate further this year and the rate is set to drop to 6 percent by the end of next year, as inflation could fall below target, Capital Economics economist William Jackson said.

The Bank of Russia trimmed its key rate by a larger-than-expected 50 basis points on Friday to 9.25 percent. The bank also maintained its dovish stance saying there was more room to cut rates further.

"Taken together with the relatively dovish tone of the statement, supports our view that the policy rate will come down much further than the markets are pricing in," Jackson said.

Capital Economics expects the rate to be reduced to 8 percent by the end of this year.

While the accompanying statement did not reveal the motivation for upping the pace of easing, Jackson said that it was almost certainly due to the softness of the latest inflation data and the strength of the ruble.

Policymakers also may have wanted to stem upward pressure on the ruble, the economist added.

The bank's policy statement seems to have reduced the importance attached to measures of inflation expectations, acknowledging that these tend to lag actual inflation, Jackson said.

The bank also stressed that the fading impact of recent good harvests might temporarily push food inflation higher in coming months.

"Overall, the Bank has softened its view on inflation a little - inflation is expected to hit target "before" the end of 2017, rather than "by" the end," Jackson said.

The economist expects inflation could still surprise on the downside and fall below the bank's target in the second half of this year and remain there through 2018.

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