Russia's 2019 GDP growth seen slowing to 1%, central bank to cut rates further: Reuters poll

MOSCOW (Reuters) - The Russian central bank is likely to lower interest rates this year faster than previously thought as economic growth is on track to undershoot official forecasts, a monthly Reuters poll showed on Wednesday.

FILE PHOTO: People walk past the Central Bank headquarters in Moscow, Russia February 11, 2019. REUTERS/Maxim Shemetov

Slowing inflation and stumbling economic growth should give the central bank more room cut rates provided no external shocks, such as new Western sanctions, hit its commodity-dependent economy and markets.

In 2019, Russia’s gross domestic product is seen growing by 1.0%, the average forecast among analysts and economists from 21 banks and companies polled in late July showed.

That is less than the 1.2% GDP growth predicted in the same poll a month ago and the 2.3% expansion officially reported for 2018. Most of the forecasts in the Reuters poll are based on at least 10 individual projections.

The central bank, which has cut rates twice this year as the economy and inflation have slowed, had forecast 2019 GDP growth at 1.0-1.5%.

Inflation expectations for 2019 among analysts in the Reuters poll remained stable compared with a month ago.

Annual inflation is seen at 4.3% in 2019, the July poll showed, slowing further to 3.9% in 2020. In June, analysts forecast 2019 inflation at 4.3% and 2020 inflation was seen at 4.0%, the central bank’s target level.

The central bank is now seen cutting its key rate, currently 7.25%, to 7.00% in the fourth quarter. In late June, analysts had predicted that the rate would reach that level only in the first quarter of 2020.

In 12 months from now, the rouble is seen at 66.50 versus the dollar and 76.85 versus the euro. The previous poll foresaw exchange rates of 66.50 and 76.31, respectively.

“The rouble continues to enjoy sanctions oblivion and accrued non-resident inflows into the local debt,” said Vladimir Miklashevsky, senior economist and trading desk strategist at Danske Bank.

“Fed’s loose stance is another factor favoring the rouble,” Miklashevsky said, referring to plans by the U.S. Federal Reserve to lower rates.

On Wednesday, the rouble’s official exchange rates, set by the central bank, were 63.38 per dollar and 70.60 per euro, with the Russian currency rising on hopes that the Fed will trim U.S. interest rates for the first time in more than 10 years.

Additional reporting by Elena Fabrichnaya; Writing by Andrey Ostroukh; Editing by Catherine Evans