March 20, 2018 / 1:53 PM / a month ago

Russian central bank seen cutting rate to 7.25 percent on Friday: Reuters poll

MOSCOW (Reuters) - The Bank of Russia is expected to cut its key interest rate on Friday as inflation remains at post-Soviet lows and inflationary expectations continue to fall, a Reuters poll showed on Tuesday.

FILE PHOTO - A policeman stands guard at the main entrance to the Bank of Russia in Moscow, Russia, June 15, 2015. REUTERS/Maxim Zmeyev

The central bank is likely to cut the key rate by a quarter-point to 7.25 percent from 7.50 percent at its next board meeting on March 23, according to 21 of the 23 analysts and economists polled by Reuters.

Analysts see room for rate cuts as inflation, once stubbornly high at double-digit levels, hit another record low of 2.18 percent in February, well below the central bank’s target of 4 percent.

“We think that a 25-basis-point rate cut could be followed by a few more cuts in the second half of 2018,” Renaissance Capital analysts said in a note.

“However, we maintain our view that a 6.75 percent terminal rate achieved in the second quarter of 2018 will mark the end of this cutting cycle and see next year’s inflation at 4 percent.”

Igor Dmitriev, the central bank’s head of monetary policy, said last week he would recommend the board of directors to cut the key rate at Friday’s meeting.

The central bank also indicated last week that it could bring the key rate to levels of 6 to 7 percent this year. Previously, it had aimed at lowering the key rate to that range in 2018-2019.

Two of the analysts and economists polled by Reuters predicted the central bank would cut the key rate half a point to 7.00 percent this Friday, lowering the cost of borrowing in the broader economy.

Metallinvestbank’s head of currency dealing, Sergey Romanchuk, said lower-than-expected inflation would prompt the central bank to deliver a bigger cut.

“The economy really needs support, and inflation is too low. Although the central bank rules out the danger of deflation, recently ... inflation has fallen faster than the central bank and the market (predicted),” he said. “The central bank cannot fail to see this.”

The central bank, which embarked on a rate-cutting cycle in 2015, will publish its rate decision at 1030 GMT on Friday. This will be followed by a press briefing with Central Bank Governor Elvira Nabiullina.

Reporting by Lena Fabrichnaya and Jack Stubbs; Editing by Andrey Ostroukh and Larry King

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