MOSCOW (Reuters) - Russia’s central bank slashed interest rates on Friday to the lowest level since the collapse of the Soviet Union, pledging to consider the need for even lower rates amid waning inflationary risks and a shrinking economy.
The central bank delivered a deeper-than-usual cut of 100 basis points, taking the key rate to 4.5% RUCBIR=ECI, in the face of the crisis sparked by the coronavirus and the related lockdowns, in line with a Reuters poll.
Governor Elvira Nabiullina said the economy may feel the impact of the monetary easing in three to six quarters, adding that the strengthening rouble provides more room for monetary easing.
“We will further assess the feasibility of extra measures to ease our monetary policy, to lower the rate,” Nabiullina said at an online media conference, presenting the rate move.
Lower rates make lending cheaper, spur spending and could help relieve the economic contraction caused by the coronavirus outbreak, which has infected more than half a million people in the country.
Lower rates, however, are unlikely to have a strong direct impact on the economy’s post-pandemic recovery, analysts said.
Nabiullina said the central bank sees an increasing number of reasons to revise the 6% to 7% range it deems to be neutral monetary policy, which analysts said implied lowering that range.
In 2020, the central bank said, the economy will contract by 4% to 6% before returning to growth in 2021. Inflation is likely to finish the year close to the 4% target, peaking early next year, the central bank said.
Analysts split over the chances for more rate cuts.
ING said another 50-basis-point cut was “highly likely this year”, Capital Economics foresaw the key rate at 3.5% by year-end, and Sberbank said the central bank may consider lowering the key rate below the 4% inflation target.
Renaissance Capital said Friday’s rhetoric suggested the central bank’s rate reached its final level unless there is a new global wave of the coronavirus pandemic in coming months.
Nabiullina said the central bank’s base scenario does not envisages the risks of a second wave of the coronavirus.
Additional reporting by Darya Korsunskaya, Gabrielle Tétrault-Farber, Maria Kiselyova and Katya Golubkova; editing by Larry King
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