May 22, 2020 / 1:54 PM / 13 days ago

UPDATE 1-Russian central bank says ready for sharp rate cut

(Adds quotes, detail)

MOSCOW, May 22 (Reuters) - Russia’s central bank is ready for a rate cut in June to counteract economic contraction, but it is not considering lowering rates below inflation, Central Bank Governor Elvira Nabiullina said on Friday.

Monetary easing in Russia has pushed prices of government bonds, popular among foreign investors, to record highs amid expectations that the central bank will slash the cost of borrowing amid the COVID-19 pandemic.

“The option of lowering the key rate by one percentage points in June is on the table, but this probability is still below 100%,” Nabiullina said at an online media conference.

The central bank cut its key rate to 5.5% in April and has promised to cut rates further, switching to an accommodative monetary policy with the economy expected to shrink by up to 6% this year, battered by lockdowns intended to limit the new coronavirus outbreak.

In the second quarter, the economy may contract by more than 8% year-on-year, Nabiullina said, but the bank’s board of directors sees no need to lower rates to less than zero, which is below annual inflation.

Consumer inflation is likely to peak in the summer, Nabiullina said, sticking to the central bank’s year-end inflation forecast of 3.8% to 4.8%.

Nabiullina also said there were no plans to substantially amend the current fiscal rules, a tool which shields Russia from fluctuations in prices for oil, the country’s key exports.

Nabiullina said Russia may need to increase state borrowing to cover budget shortfalls, echoing the finance ministry’s statement.

The next such online conference is scheduled for June 5, two weeks before the rate-setting meeting on June 19. (Reporting by Andrey Ostroukh, Gabrielle Tétrault-Farber, Elena Fabrichnaya and Alexander Marrow; writing by Andrey Ostroukh; editing by Larry King)

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