MOSCOW Russia's central bank kept its key interest rate RUCBIR=ECI unchanged at 10 percent on Friday and said it will consider cutting rates in the first half of 2017 as inflation risks subside.
As a sign of caution, the central bank dropped its previous reference to a possible rate cut in the first or second quarter of next year. It said the potential for rate cuts was limited in the near future.
"As the trend towards a sustainable decline in consumer price growth takes root, the Bank of Russia will consider an opportunity of cutting the key rate in the first half of 2017," it said in a statement.
Consumer inflation in Russia slowed to 5.6 percent as of mid-December, and is on track to decline further to the central bank's target of 4 percent in late 2017.
Though inflation is hitting post-Soviet lows, the central bank said it still sees risks that inflation won't hit the target, as a reduction in inflation expectations remains unstable.
A decline in households' propensity to save also poses risks to the inflation slowdown, the bank said.
The central bank kept its 2016 gross domestic product forecast, saying the economy will contract by 0.5-0.7 percent.
"We expect moderate economic growth of less than 1 percent in 2017 and an increase to 1.5-2 percent in 2018-2019."
In spite of a recent increase in prices for oil, Russia's key export, the central bank said it was sticking to its conservative assumptions that oil prices will average $40 per barrel over the next three years.
The next rate setting meeting is scheduled for Feb. 3.
(Reporting by Andrey Ostroukh and Alexander Winning; Editing by Christian Lowe)