UPDATE 2-Russia lowers interest rate to 5.5% amid coronavirus outbreak

* Central bank says further rate cuts in sight

* Sees economy contracting 4-6% in 2020

* Governor Nabiullina says lockdowns curb inflation

* Some economists expect next rate cut on June 19 (Adds details, comment)

By Andrey Ostroukh, Gabrielle Tétrault-Farber and Elena Fabrichnaya

MOSCOW, April 24 (Reuters) - Russia’s central bank lowered interest rates on Friday and promised more cuts to support the economy it sees contracting by up to 6% this year due to the coronavirus outbreak and low prices for oil, the country’s key export.

The bank reduced its key rate to 5.50% from 6%, delivering a deeper-than-usual cut in line with a Reuters poll that forecast the Bank of Russia would follow other central banks and slash rates amid the global economic downturn triggered by the viral pandemic.

Governor Elvira Nabiullina, presenting the rate decision, said small monetary policy steps could be insufficient in the current extraordinary situation. “We keep seeing room for further monetary policy easing at upcoming meetings,” Nabiullina said, adding that the key rate could fall below 5%.

The central bank, which held rates unchanged last month amid fears that inflation would spike as the rouble slid to four-year lows, said on Friday it was switching to “an accommodative monetary policy.”

The rouble firmed after Friday’s rate cut.

Indicating its readiness to cut the cost of lending, the Bank of Russia painted a dire economic picture.

The commodity-dependent economy will shrink by up to 6% this year and Russia’s falling exports will be the key contributing factor to the contraction, Nabiullina said.

Before the coronavirus outbreak, which has so far killed more than 600 people in Russia, the central bank had anticipated economic growth of 1.5-2% in 2020.

The economy will now take a hard hit in the second quarter, possibly shrinking by 8% in year-on-year terms, Nabiullina said.

But in quarterly terms, it could return to growth as early as the third quarter, she added.

Inflation may exceed the 4% target this year but will be under pressure from weak demand due to Russia’s lockdown measures aimed at slowing the spread of the new coronavirus.


Economists took Nabiullina’s words as a clear indication the central bank will not wait long to carry out its next rate cut.

“We expect another 50 bps cut at the next rate-setting meeting in June,” said Alexey Pogorelov, chief economist at Credit Suisse in London.

Sofia Donets, chief economist at RenCap who previously worked at the central bank’s monetary policy department, also said the central bank could slash the key rate to 5% at the next meeting on June 19.

“The depth of the forecast economic contraction was the main surprise for us. It explains the bigger step (rate cut) and the signal for further easing,” Donets said.

Sberbank CIB, an investment arm of Russia’s largest lender, said a rate cut seemed possible in June if the situation in financial markets does not change substantially.

“We currently see another 25-50 basis points cut to 5.00-5.25% by year-end as the most likely scenario,” Citi said in a note. (Writing by Andrey Ostroukh; additional reporting by Alexander Marrow, Tom Balmforth and Maria Kiselyova; Editing by Mark Heinrich)