Bank of Russia cuts key interest rates to 11%

The Bank of Russia Board of Directors today decided to cut the key rate from 11.50% to 11.00% per annum, saying that “the balance of risks shifts towards the considerable economy cooling despite a slight increase in inflation risks.”

The regulator forecasts that consumer price growth will keep slowing due to slack domestic demand. Annual inflation is expected to fall below 7% in July 2016 and to reach the 4% target in 2017. The Bank of Russia said it will further decide on its key rate depending on the balance of inflation risks and risks of economy cooling.

The central bank noted that major macroeconomic indicators demonstrated further economy cooling in Q2 2015. The regulator estimates that the GDP decrease in Q2 2015 compared with the similar quarter last year is more significant than that in Q1 2015.

The decline in retail lending is also contributing to further contraction of consumer spending, the Bank added.

As usual, the central bank mentions that the economic situation in Russia will further depend on the dynamics of world energy prices and the economy’s ability to adapt to external shocks. At the same time the scenario with oil prices remaining below US$60 per barrel for a long time is more probable than it was in June.

The Forex world is keeping a close eye on the monetary policy decisions of Russia’s “Megaregulator”, especially after the Bank of Russia’s snap decision last December to sharply raise the key interest rates to 17%. The move then led to a sudden withdrawal of liquidity for RUB instruments, which forced many Forex brokers to suspend offering of trading with Ruble pairs.

The Bank of Russia has cut the key interest rates several times since that moment – on January 30th, March 13th, April 30th and June 16th this year.

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To view the official announcement on the latest key rates decision, click here.

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