Russian central bank cuts key rate for second time this year

[September 16, 2016]  By Alexander Winning and Lidia Kelly

MOSCOW (Reuters) - Russia's central bank cut its main lending rate on Friday for the second time this year, citing an inflation slowdown, decrease in inflation expectations and an uncertain recovery, but said there would be no further cuts until next year.

The 50 basis point cut to 10 percent was in line with the expectations of economists, who had pointed to the fact that real interest rates in Russia were high.

For a trend towards a sustainable decline in inflation to strengthen, the central bank said the key rate needed to be maintained until the end of the year at 10 percent with further possible cuts in the first and second quarters of next year.

"The Bank of Russia expects the decision made and maintenance of the key rate at the level it reached will bring down inflation expectations," it said in a statement.

The central bank is treading cautiously on monetary policy, despite the economy struggling to emerge from a deep slump, as it battles to bring inflation down to its target level of 4 percent by the end of next year.

Inflation slowed to 6.9 percent year on year in August <RUCPIY=ECI> from 9.8 percent in January.

Nevertheless, central bank head Elvira Nabiullina said last week the central bank would continue its "moderately tight" monetary policy and that interest rates that are above inflation were a "new reality".

The bank said on Friday that more time was needed for positive trends to get rooted in the economy but that positive quarterly gross domestic product growth was possible in the second half of the year.

Russian central bank governor Elvira Nabiullina attends a news conference, dedicated to the issuance of a new 200-rouble banknote, in Moscow, Russia, June 28, 2016. REUTERS/Sergei Karpukhin

Next year growth would stay below 1 percent, the bank said, basing its prediction on sluggish growth in the global economy, an average oil price of around $40 per barrel and persistent structural constraints for Russian economic development.

The central bank forecast inflation would be at 4.5 percent in September 2017 and would then fall to the bank's 4 percent target in late 2017.

The rouble barely reacted to the rate decision.

Nabiullina is to hold a news conference at 1200 GMT, when she is expected to give new guidance on the outlook for Russian monetary policy.

(Editing by Christian Lowe)

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