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By Andrey Ostroukh and Elena Fabrichnaya
MOSCOW, April 28 (Reuters) - Russia’s central bank sees room for more cuts in its key interest rate and could lower rates in bigger steps than before to support the economy struggling with the coronavirus outbreak, Governor Elvira Nabiullina said on Tuesday.
The central bank slashed its key rate by 50 basis points to 5.5% last week, predicting that the economy wou ld contract by up to 6% this year due to the pandemic and low prices for oil, the country’s key export.
Nabiullina, speaking to the lower house of parliament, said it was important to provide the economy with cheaper lending in the extraordinary situation to help it recover after lockdown restrictions are eased and lifted.
“Understanding the nature and the scale of the economic shock that we have now faced, we are saying that we can lower the rate in larger steps than before,” Nabiullina said.
The central bank declared its switch to the accommodative monetary policy last week, facing a need to prop up the economy and business activity battered by the lockdowns that Russia introduced in late March.
Despite the lockdowns, the number of new infections in Russia kept climbing, increasing on Tuesday by 6,411, a record daily rise that brought the nationwide tally to 93,558. The number of deaths reached 867.
The banking sector in Russia is now in “a quite good shape” but will see a drop in lending activity as people and companies are cautious about increasing their debt burden, Nabiullina said.
“Unfortunately, we expect loan arrears and bad loans to grow,” she said.
People and companies that are most vulnerable to the current crisis owe banks around 19 trillion roubles ($257.14 billion), a third of the overall credit portfolio, Nabiullina said, noting that banks now see a massive increase in requests to restructure outstanding loans.
Unsecured retail lending will contract by up to 5% this year after growing 21% in 2019. Mortgage growth will slow to 10% from 20%, predicted Nabiullina.
“We deem it is important at the current stage to expand mechanisms of direct state support to citizens and businesses” to lift some pressure off the banks, Nabiullina said.
$1 = 73.8891 roubles Reporting by Andrey Ostroukh and Elena Fabrichnaya; editing by Larry King