Russian central bank cuts key interest rate by 100 bps to record low

MOSCOW (Reuters) – Russia’s central bank lowered its key interest rate to a record low of 4.50% on Friday, delivering a deeper-than-usual cut, and said it would consider the need to trim the cost of lending further amid low inflationary risks and a shrinking economy.

The 100-basis-points was in line with a Reuters poll that forecast the Bank of Russia would address the crisis sparked by the novel coronavirus and lockdowns that followed.

“If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of a further key rate reduction at its upcoming meetings,” the central bank said.

Chances that inflation will be subdued in Russia have increased under pressure from a decline in domestic and external demand, the bank said.

Annual inflation reached 3.1% as of June 15, remaining below the 4% target, contained by a recovery in the rouble as Russia’s lockdown measures suppressed consumer demand.

The negative impact of restrictive measures imposed to fight the virus is lasting longer than the central bank had previously assumed, it said.

That leaves the door open to lower interest rates as the economy is on track to contract by 4-6% in 2020, the central bank said, before returning to growth in 2021.

The rouble eased to 69.55 against the U.S. dollar after the rate cut , compared with levels of 69.45 seen shortly before the monetary policy decision.

Elvira Nabiullina, governor of the central bank, will shed more light on the central bank’s forecasts and monetary policy plans at an online news conference at 1200 GMT.

The next rate-setting meeting is scheduled for July 24.

(Reporting by Andrey Ostroukh, Gabrielle Ttrault-Farber, Elena Fabrichnaya, Maria Kiselyova; Editing by Andrew Osborn)