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Financial News: Sharp Fall In Russia Inflation May Trigger Another

Sharp Fall In Russia Inflation May Trigger Another Rate Cut: Capital Economics

08/04/2017 - 10:09:00 (RTTNews)

(RTTNews) - Russia's inflation eased more-than-expected in July, official figures showed on Friday, which could prompt the central bank to cut interest rates next month, Capital Economics' economist William Jackson said.

Headline inflation dropped to 3.9 percent from 4.4 percent in June. Economists had forecast a modest easing to 4.3 percent. Inflation fell below the central bank's target of 4 percent.

Compared to the previous month, the consumer price index edged up 0.1 percent in July, which was less than the 0.5 percent increase economists had predicted.

The breakdown of the data revealed a broad-based decline in inflation, Jackson pointed out, while services inflation did not fall.

"We think that [services inflation] is a reflection of changes in administered prices rather than stronger underlying price pressures," the economist said.

Core inflation dropped to 3.3 percent in July, the lowest for the series, he noted.

The Bank of Russia held its key rate unchanged at 9 percent late July, but reiterated that there was room for cutting the rate later this year.

The bank had trimmed the rate by 25 basis points each in June and March.

Jackson reckoned that the latest pause in the easing cycle was likely a response to June's higher-than-expected inflation reading.

"But today's data should reassure policymakers that June's figure was a blip," the economist said.

"It is also likely to result in a decline in household and market-based measures of inflation expectations."

The next rate-setting session is scheduled for September 15, prior to which the inflation data for August will be released.

Inflation should be broadly steady in August, Jackson said.

"We remain comfortable with our view that the central bank will lower its one week repo rate from 9.00 percent now to 8.00 percent by the end of this year and to 6.00 percent by the end of 2018," he added.

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