Russia Will Consider Reducing Key Rate in July, Nabiullina Says

(Bloomberg) --

A second consecutive interest rate reduction is possible at the Russian central bank's next meeting later in July and it isn't ruling out a cut of 50 basis points, Governor Elvira Elvira Nabiullina said.

“Inflation has been reasonably contained and we think pro-inflationary risks are limited for the next 6-12 months if there are no external shocks,” Nabiullina told a press conference at at the International Financial Congress in St. Petersburg. “We will consider the possibility of a cut in July.”

Russia shifted solidly to monetary easing in June, saying its first rate cut in more than a year could be followed by two more in 2019. Nabiullina said earlier on Thursday that easy monetary policy won't fix Russia's problem of sluggish economic growth, which needs to be addressed through structural reform.

All but one of the 10 analysts polled in a Bloomberg survey are forecasting that the central bank will keep interest rates at 7.5% at the next rate meeting on July 26, although most economists expect more reductions later this year as inflation retreats.

Data due as soon as Friday are expected to show a slowdown in headline inflation to 4.8% in June from 5.1% a month earlier.

‘Increased Risks'

The central bank prefers to make small moves on the key rate, but did consider a half-percentage point cut at the last meeting, and will do so again, Nabiullina said. A half-percentage point move would be the first since late 2017 and would take Russia's key rate to the lowest level in half a decade.

“It's too early for a 50 basis point cut,” said Irina Lebedeva, an economist at Uralsib Bank in Moscow. “It could lead to a sharp outflow of capital and increased risks to the ruble.”

--With assistance from Kira Zavyalova.

To contact the reporter on this story: Anna Andrianova in St Petersburg at aandrianova@bloomberg.net

To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Natasha Doff, Tony Halpin

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