September 29, 2017 / 2:06 PM / a year ago

Below target Russian inflation to give room for deeper rate cut: Reuters poll

MOSCOW (Reuters) - Russian inflation will fall below the central bank’s target in 2017 which should allow the bank to cut rates deeper than previously expected, the Reuters monthly economic poll found on Friday.

FILE PHOTO: A coat of arms of the Russia's Central Bank is pictured in the bank's press room in Moscow, March 13, 2015. REUTERS/Sergei Karpukhin

The consensus forecast showed for the first time that analysts and economists believe the central bank will to keep 2017 inflation below the bank’s 4 percent target.

Once stubbornly high at double-digit levels, inflation is now seen at a post-Soviet low of 3.7 percent for the whole of 2017. A month ago, the same poll showed full-year inflation was seen at 4.1 percent, while in late 2016 this year’s inflation was expected at 4.9 percent.

Lower inflation gives room for monetary easing. The central bank is now expected to cut the key rate to 8 percent by the end of this year from 8.5 percent at present.

A month ago, analysts and economists on average predicted the key rate at 8.25 percent by the end of 2017.

Economic growth forecast improved marginally. Gross domestic product is seen expanding 1.8 percent this year, up from 1.7 percent predicted a month ago.

This brings GDP growth forecasts closer to levels of up to 2.2 percent predicted by the central bank earlier this month.

Renaissance Capital analysts said economic growth this year could be shaped by a more pronounced recovery in consumer demand and higher gross capital formation.

Looking forward, economists expect consumer inflation to pick up next year.

“In early 2018 we expect inflation to accelerate, peaking at 4.4 percent in March as consumer demand recovers and the deflationary FX pass-through reverses, though a moderately tight monetary policy should return it to the CBR target of 4.0 percent by end-2018,” Morgan Stanley analysts said.

Economic growth is seen running at 1.8 percent next year, the poll showed.

“Persistently low unemployment and the impact of promised minimum and civil servant wage hikes and retired pensioners’ increased stipends are like to support a private consumption recovery,” Moody’s analysts said, referring to 2018.

The rouble exchange rate is seen at 58.68 against the dollar in a year from now, stronger than 61.60 predicted by the previous poll.

On Friday, the rouble hovered at 57.77 versus the dollar RUBUTSTN=MCX, firming 6 percent so far this year.

Writing by Andrey Ostroukh

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