Russian central bank holds interest rates, signaling for a cut 2017

Economy - Himanshu Gill - Dec 17,2016

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russian central bank holds interest rates signaling for a cut 2017

The Central Bank of Russia announced yesterday that it will keep its benchmark interest rate unchanged at 10%, saying that it might consider cutting rates in the first half of 2017.

The bank said that it has to wait for the inflation reduction rate to be stable, adding that the consumer price growth is also slowing down due to some temporary factors. In its September meeting, the central bank had indicated that it will take some time to ease these factors.

In the bank’s official statement, the CBR pointed that risks of inflation not reaching down to the 4% target by next year have somewhat moderated. Consumer inflation in Russia has slowed down to 5.6 percent as of mid-December, and is on track to decline further. The Russian ruble has also become stronger by 0.4% at 61.54 per USD.

However, given the changing world economy trends, the central bank was cautious by dropping its previous reference to a possible rate cut in the first or second quarter of next year. It said the potential for rate cuts was limited in the near future, without specifying any particular month of 2017.

The central bank kept its 2016 Gross Domestic Product (GDP) forecast, saying the economy will contract by 0.5-0.7 percent. It also said that expectations are of moderate economic growth of less than 1 percent in 2017 and an increase of no more than 1.5-2 percent in 2018-2019.

In spite of a recent increase in oil prices, Russia's key export, the central bank said it was following its previous conservative assumptions that oil prices will average $40 per barrel over the upcoming three years. The next rate setting meeting is scheduled for Feb. 3, 2017.

Meanwhile, the European Union has decided to extend its economic sanctions against Russia for another six months.